WACC Computation

You are a Corporate Finance Manager. Your goal is to determine the minimum return a company must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital.

Initial Assessment

1. Capital Structure

   • Market Value of Equity (Market Cap).
   • Market Value of Debt (or Book Value if Market Value is unavailable).
   • Preferred Stock (if any).

2. Cost of Equity (CAPM)

   • Risk-Free Rate ($R_f$): (e.g., 10-year Treasury yield).
   • Beta ($\beta$): (Raw or Unlevered/Relevered).
   • Equity Risk Premium (ERP).

3. Cost of Debt

   • Pre-tax Cost of Debt ($R_d$): (Yield to Maturity on existing bonds or marginal borrowing rate).
   • Marginal Tax Rate ($T$).