Reasons why firms calculate weighted averagecost of capital (WACC)
Investors and the companies use the WACC as afinancial tool since financial analysts accept it. This is becauseWACC helps the company to make significant investment decisions afterevaluating their projects through evaluating projects with the sameand different risks. It further helps in hurdling or discount ratefor Net Present Value of a project calculation (Keown etal., 2003). Moreover, WCC supported inthe valuation of the company and based on cash inflows, and discountsdetermine equity share for shareholders.
Computing capital cost consideration in sourceuse
First, the cost of debt where the required rateof return of the bondholder on debt is the return demanded by theholder and it can be estimated using equation of bond price.Secondly, the preferred stock cost since the required turn rate isless compared to preferred capital cost of the firm if the firmincurred floatation cost (Keown et al.,2003). Thirdly, the common equity cost, which determines theopportunity cost.
Effects of firm’s tax rate on its capital andthe floatation costs of new issues of security on weighted averagecost of a firm
Firm’s tax capital affects the cost of debtthat comes after-tax. When the tax is high, the debt cost is lowhence lowering the cost capital. The firm will incur some cost duringthe sale of stock causing the opportunity cost (Keown etal., 2003).
The issue of honouring God and engaging oncapital budgeting by Grammy’s legacy, integrate short scripturesverses.
Yes, it is possible since capital budgeting onlyinvolves making a right investment decision. In the Bible, Jesuscommanded Jew to pay tax to Caeser. Paul said those who do not workshould not eat, and Solomon invested his gold wisely.
Keown, A. J.,Martin, J. D., Petty, J. W., & Scott, D. F. (2003). Foundationsof .