Debt Calculators

Whilst the capital asset pricing model provides a method of assessing the required rate of return on equity companies are often funded from a variety of sources including common stock, preferred stock and long term sources of debt. As such in order to assess a company’s true cost of finance a weighted average needs to be taken of all the relative costs of finance. This figure is known as the weighted average cost of capital WACC and is a figure which is often used as a starting point for a discount rate in capital budgeting. The figure is also often used as a hurdle rate in assessing a projects worth in the capital budgeting process.

The Information Required to Calculate WACC

As with many financial models the best way to approach the subject is to build a model by setting out the relevant information and then to apply a formula which makes use of the relevant data. In order to do this the following data is required.

re – The required rate of return on equity, this can be calculated using the capital assets pricing model CAPM. For demonstrative purposes a rate of 12% will be used.

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