Weighted Average Cost of Capital WACC - Revision history

DavidWashington: minor updates

2012-08-25T09:02:56Z

minor updates

Dienstl-Arnegger at 14:32, 11 April 2012

2012-04-11T14:32:02Z

66.161.213.180: rItBkMWmFrbeRxDHzz

2011-08-12T15:11:17Z

rItBkMWmFrbeRxDHzz

200.6.245.34: nUdmKFHDxvxOlaDxVc

2011-08-11T12:13:21Z

nUdmKFHDxvxOlaDxVc

146.243.4.157: ecvAXPLrbqUtwmfRqnm

2011-08-11T12:05:31Z

ecvAXPLrbqUtwmfRqnm

202.171.253.71: /* IGC-DEFINITION (abbreviated) */

2011-05-12T16:32:51Z

IGC-DEFINITION (abbreviated)

Thomka at 20:26, 12 January 2011

2011-01-12T20:26:37Z

Markus Berger-Vogel: /* IGC-DEFINITION (abbreviated) */

2010-12-13T14:59:04Z

IGC-DEFINITION (abbreviated)

Markus Berger-Vogel: New page: == IGC-DEFINITION (abbreviated) == '''Weighted Average Cost of Capital WACC'''
The Weighted Average Costs of Capital are calculated to simulate an interest rate that corresponds to mar...

2010-08-24T13:37:11Z

New page: == IGC-DEFINITION (abbreviated) == '''Weighted Average Cost of Capital WACC'''<br> The Weighted Average Costs of Capital are calculated to simulate an interest rate that corresponds to mar...

New page

== IGC-DEFINITION (abbreviated) ==
'''Weighted Average Cost of Capital WACC'''<br>
The Weighted Average Costs of Capital are calculated to simulate an interest rate that corresponds to market interest rates. The assumption is that the risk to invest into a company’s equity can be quantified by comparison with respective interest rates in the market. Two types of risk are distinguished:
*The risk to invest in the stock market (objective risk)
*The risk to invest in shares of a given company (subjective risk).

The objective risk is the difference between a risk-free interest rate (usually the interest rate for a government bond with guaranteed payment of interest and amortisation at the end of the bond loan) and the expected interest yield of the average stock market (price gains and dividends). These rates are calculated regularly through banks and stock exchange institutions, e.g. Swiss Performance Index.

The same institutions also calculate the Beta-factor (in short „beta“), which is used to judge the subjective risk. Beta shows – simplified – how much the stock price of a given company goes up or down, when the total market index changes by one percentage point. Beta is thus a measure for the volatility of a title.

Betas are not only calculated for companies quoted on a stock exchange but also by banks so that they can judge small and medium companies. These betas are usually available on request.

The result of the multiplication of the objective market risk with the subjective risk of the title plus the risk-free interest rate is the market-oriented interest rate for the equity of this company after tax.

Now the cost of interest for debts has to be calculated. Starting point is the actual interest rate paid today by the company. This rate has to be reduced to the interest rate after taxes. This is because interests paid for debts are deductible as expenses from the taxable income, therefore they generate tax savings when compared to financing with equity (so called tax shield). This is why the interest rate has to be reduced by the appropriate tax rate of the country.

Finally the resulting interest rates for equity and liabilities have to be weighed according to the estimated future ratio between equity and debt liabilities.

[[Image:WACCe.png|x350px|]]

from: [http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.)]

== Source ==

[http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.), 4. Auflage, Schäffer-Poeschel, Stuttgart, 2010]

← Older revision		Revision as of 09:02, 25 August 2012
Line 6:		Line 6:

	[[Category:Value-based management]], [[Financing]]		[[Category:Value-based management]], [[Financing]]
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		+	[[http://goodvillenews.com/Man-Builds-Fairy-Tale-Home-for-4700-CHIO9L.html Man Builds Fairy Tale Home for $4700]]
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		+	[[http://goodvillenews.com/wk.html GoodvilleNews.com - good, positive news, inspirational stories, articles]]
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		+	== 7 Ways to Deal With the Death of a Loved One ==
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		+	How do you deal with death, the loss of a loved one when the pain is so strong; how can you let go of the people you once loved and still love so much; how can you accept the fact that you will never see those people ever again? How can you accept the idea of loss, of death?
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		+	[[http://goodvillenews.com/wk.html GoodvilleNews.com - good, positive news, inspirational stories, articles]]
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		+	== What Is Your Legacy? Living A Meaningful life ==
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		+	I want the world to be better because I was here. I want my life, I want my work, my family, I want it to mean something and if you are not making someone elses life better then you are wasting your time Will Smith
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← Older revision		Revision as of 14:32, 11 April 2012
Line 1:		Line 1:
−	~~Hahhaaha.~~ I'm ~~not too bright today~~. ~~Great post!~~	+	I'm imrpseesd! You've managed the almost impossible.
		+
		+	== Source ==
		+
		+	[http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.), 4. Auflage, Schäffer-Poeschel, Stuttgart, 2010]
		+
		+	[[Category:Value-based management]], [[Financing]]

← Older revision		Revision as of 15:11, 12 August 2011
Line 1:		Line 1:
−	~~This wesibte makes things hella easy~~.	+	Hahhaaha. I'm not too bright today. Great post!

← Older revision		Revision as of 12:13, 11 August 2011
Line 1:		Line 1:
−	~~Yup, that shloud defo do the trick!~~	+	This wesibte makes things hella easy.

← Older revision		Revision as of 12:05, 11 August 2011
Line 1:		Line 1:
−	~~I'm imrpseesd~~! ~~You've managed the almost impossible.~~	+	Yup, that shloud defo do the trick!
−
−	~~== Source ==~~
−
−	~~[http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.), 4. Auflage, Schäffer-Poeschel, Stuttgart, 2010]~~
−
−	~~[[Category:Value-based management]], [[Financing]]~~

← Older revision		Revision as of 16:32, 12 May 2011
Line 1:		Line 1:
−	~~== IGC-DEFINITION (abbreviated) ==~~	+	I'm imrpseesd! You've managed the almost impossible.
−	''~~'Weighted Average Cost of Capital WACC / [[:de:Kapitalkostensatz WACC\|Kapitalkostensatz WACC]]'''<br>~~
−	The Weighted Average Costs of Capital are calculated to simulate an interest rate that corresponds to market interest rates. The assumption is that the risk to invest into a company’s equity can be quantified by comparison with respective interest rates in the market. Two types of risk are distinguished:
−	*The risk to invest in the ~~stock market (objective risk)~~
−	*The risk to invest in shares of a given company (subjective risk).
−
−
−	The objective risk is the difference between a risk-free interest rate (usually the interest rate for a government bond with guaranteed payment of interest and amortisation at the end of the bond loan) and the expected interest yield of the average stock market (price gains and dividends). These rates are calculated regularly through banks and stock exchange institutions, e.g. Swiss Performance Index.
−
−	The same institutions also calculate the Beta-factor (in short „beta“), which is used to judge the subjective risk. Beta shows – simplified – how much the stock price of a given company goes up or down, when the total market index changes by one percentage point. Beta is thus a measure for the volatility of a title.
−
−	~~Betas are not only calculated for companies quoted on a stock exchange but also by banks so that they can judge small and medium companies. These betas are usually available on request.~~
−
−	The result of the multiplication of the objective market risk with the subjective risk of the title plus the risk-free interest rate is the market-oriented interest rate for the equity of this company after tax.
−
−	Now the cost of interest for debts has to be calculated. Starting point is the actual interest rate paid today by the company. This rate has to be reduced to the interest rate after taxes. This is because interests paid for debts are deductible as expenses from the taxable income, therefore they generate tax savings when compared to financing with equity (so called tax shield). This is why the interest rate has to be reduced by the appropriate tax rate of the country.
−
−	~~Finally the resulting interest rates for equity and liabilities have to be weighed according to the estimated future ratio between equity and debt liabilities.~~
−
−	~~[[Image:WACCe.png\|x350px\|]]~~
−
−	~~from: [http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg~~.)]

	== Source ==		== Source ==

← Older revision		Revision as of 20:26, 12 January 2011
Line 25:		Line 25:

	[http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.), 4. Auflage, Schäffer-Poeschel, Stuttgart, 2010]		[http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.), 4. Auflage, Schäffer-Poeschel, Stuttgart, 2010]
		+
		+	[[Category:Value-based management]], [[Financing]]

@@ Line 1: / Line 1: @@
 == IGC-DEFINITION (abbreviated) ==
-'''Weighted Average Cost of Capital WACC'''<br>
+'''Weighted Average Cost of Capital WACC / [[:de:Kapitalkostensatz WACC|Kapitalkostensatz WACC]]'''<br>
 The Weighted Average Costs of Capital are calculated to simulate an interest rate that corresponds to market interest rates. The assumption is that the risk to invest into a company’s equity can be quantified by comparison with respective interest rates in the market. Two types of risk are distinguished:
 *The risk to invest in the stock market (objective risk)
@@ Line 21: / Line 21: @@
 from: [http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.)]
 == Source ==
 [http://www.igc-controlling.org/EN/_publikationen/publikationen.php IGC-Controller-Wörterbuch, International Group of Controlling (Hrsg.), 4. Auflage, Schäffer-Poeschel, Stuttgart, 2010]