Unformatted text preview: Weighted Average Cost of Capital WACC = w D *r D (1 – T) + w P *r P + w CE *r CE • for common equity, the firm uses all retained earnings first since r S < r e • actual WACC (WACC*) is the overall “hurdle rate”, i.e. the minimum required rate of return ⇒ use the existing WACC for the discount rate for calculating present values for overall, general corporate decisions • for individual projects and decisions, need to account for risk and calculate the project-specific cost of equity and WACC...
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- Summer '10
- Weighted average cost of capital