Calculating WACC – Cost of Debt and Equity

This video covers the following learning objectives:

• Define Weighted Average Cost of Capital (WACC) and explain its role in evaluating a company’s blended financing cost.

• Identify the components of WACC, including market value of debt, market value of equity, tax rate, and the required returns on debt and equity.

• Calculate the after-tax cost of debt, using bond pricing or yield to maturity estimates, including Excel-based solutions.

• Determine the cost of equity using the Capital Asset Pricing Model (CAPM), with practical application in Excel.

• Apply the WACC formula in real-world examples, incorporating cost of debt, cost of equity, tax considerations, and capital structure weights.

• Demonstrate how to use Excel financial functions, including =RATE() for bond yield and =CAPM inputs for equity return.

• Explain the significance of WACC in project evaluation, business valuation, and capital budgeting decisions.

• Relate WACC concepts to major financial certifications, including:

  • CFA Level 1: WACC, CAPM, cost of capital concepts

  • CSC (Canadian Securities Course): Capital structure and corporate finance fundamentals

  • FRM Part 1: Risk-adjusted returns and cost of capital applications

  • CFP: Business financing and valuation decisions