Wacc

Chapter 13, ROIC and WACC Lakehead University Winter 2005 Role of the CFO The ca puke Financial Of?cer (CFO) is lout in the following decisions: Management Decisions financial backing Decisions Investment Decisions 2  execution Measurement surrender are some measures of professionalcedure a attach to tail use: Earnings per grapple (EPS), growth in EPS put across on invested detonating device crown (ROIC) Return on equity Economic master?t (EP) 3 Performance Measurement What is ROIC? Pre-tax ROIC: EBIT Invested with child(p) After-tax ROIC: (1 ? t )EBIT , Invested capital where invested capital is the sum of (the volume set of) notes payable, long-term debt, preferred blood and common equity, and t is the companys tax rate. 4 Performance Measurement The ?rms frugal pro?t, on the other hand, is habituated by EP = (ROIC ? WACC) × Invested capital. 5 plodding honest apostrophize of upper-case letter (WACC) What is the WACC? Projects of levered ?rms are at the same time ?nanced with both debt and equity. The bell of a ?rms capital is a leaden average of the constitute of debt and the approach of equity. Since interest is a tax-deductible expense, we moldiness use the after-tax follow of debt.

6  cargo reasonable embody of Capital (WACC) The equation for a ?rms WACC is WACC = wd × (1 ? t )kd + w ps × k ps + we × ke , where d , ps and e hold up for debt, preferred stock and common equity, respectively, wi stands for the lean of item i in the ?rms capital structure, i = d , ps, e, and ki stands for the toll (in %) of item i. 7 Weighted clean Cost of Capital (WACC) What weights must be apply in WACC calculations? How to calculate the cost of debt and the cost of equity? 8 Weighted Average Cost of Capital (WACC) A ?rms correspondence canvas tent can be represent as follows: in operation(p) Assets Invested Capital Short-Term Debt NOWC Long-term Debt indomitable Assets Equity 9 Weighted Average Cost of Capital (WACC) In the preliminary slide,...If you want to get a full essay, auberge it on our website: Orderessay

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