MGMP 543, FINANCE
Session 16 – Capital Structure and Firm Discount Rates
Professor Kunal Sachdeva
1
,Today’s Topics – Capital Structure and Firm
Discount Rates
1. Calculating WACC
2. Calculating WACC with Multiple Sources of Financing
3. Market or Book Value?!
4. Applying WACC for Valuations!
5. Company vs. Project
6. Unlevering and Relevering Beta
2
,Calculating WACC
3
, Calculating WACC
• We want to figure out the borrowing cost of the entire firm
• If we take into account the distortionary effects of taxes, we saw that
the firms WACC is the weighted average of all funding sources.
𝐷 𝐸
𝑊𝐴𝐶𝐶 = 𝑟! 1 − 𝑇" + 𝑟#
𝑉 𝑉
4
Session 16 – Capital Structure and Firm Discount Rates
Professor Kunal Sachdeva
1
,Today’s Topics – Capital Structure and Firm
Discount Rates
1. Calculating WACC
2. Calculating WACC with Multiple Sources of Financing
3. Market or Book Value?!
4. Applying WACC for Valuations!
5. Company vs. Project
6. Unlevering and Relevering Beta
2
,Calculating WACC
3
, Calculating WACC
• We want to figure out the borrowing cost of the entire firm
• If we take into account the distortionary effects of taxes, we saw that
the firms WACC is the weighted average of all funding sources.
𝐷 𝐸
𝑊𝐴𝐶𝐶 = 𝑟! 1 − 𝑇" + 𝑟#
𝑉 𝑉
4
