Q:
What are the limitations of WACC?
A:
Quick Answer
According to Financial Management, the Weighted Average Cost of Capital (WACC) formula does not account for the financial risk that comes with raising capital for projects. It also assumes that the costs of capital will and inputs will not fluctuate.
Continue ReadingFull Answer
Using the WACC can still be useful, according to Financial Management. WACC is the minimum rate of return required to create value for firms. Investors will have sufficient reason to continue investing in a given firm if it earns a return equal to or more than the WACC. The formula is: WACC = ke[VE ÷ (VE + VD)] + kd(1 – t)[VD ÷ (VE + VD)].
Learn more about AccountingSources:
Related Questions
-
Q:
What is capital income?
A: Capital income is income generated by an asset over time, rather than from work done using the asset, according to Investopedia. If a farmer buys land for ... Full Answer >Filed Under: -
Q:
What is owner's capital?
A: In business, owner's capital, or owner's equity, refers to money that owners have invested into the business. In some instances, individuals prefer to fina... Full Answer >Filed Under: -
Q:
How do you write a monthly report?
A: Monthly reports are used by project managers and program directors to inform supervisors of the progress of projects. The reports are based on one calendar... Full Answer >Filed Under: -
Q:
What is the difference between operating and capital budget?
A: Operating budgets pay for day-to-day expenses, while capital budgets pay for major capital, or investment, spending, writes Kevin Johnston in an article in... Full Answer >Filed Under:
You May Also Like
-
Q:
What is the difference between private and public accounting?
-
Q:
What are some resources for free answers to accounting questions?
-
Q:
What information is in a bookkeeping template?
-
Q:
What is accrual accounting?
-
Q:
What styles of accounting ledgers are available?
-
Q:
What does a simple order form contain?
