WST: 3.4 Finance 101 - WACC Defined and Calculated

[makeiteasyable]

ty

[adelle0001]

nice video!

[Friis1966]

He uses IRR as comparison!? to WACC. Truely a misunderstanding. Use the WACC to discount expected future Cash Flows and calculate NPV. E.g use NPV and not IRR.IRR does not differ between lending and borrowing, And it does NOT enable you to compare the profitability of different projects.

[wstss]

@Friis1966 Absolutely WACC and IRR are comparable in capital budgeting. In essence, the WACC, is the minimum hurdle rate for projects since that is the funding cost on a weighted average basis. The IRR is the internal rate of return of some project being analyzed. If the IRR > WACC, then invest in the project because it is returning more than it costs.

[wstss]

If IRR < WACC, that implies your project doesn’t return enough to meet the funding of that project and thus, will be unprofitable. IRR is the rate that will cause your future cash flows and your initial project cost to be equal to zero. You said it yourself – use the WACC to discount expected future cash flows and calculate NPV. And if such NPV is less than the project cost, then that means you will lose money.

[wstss]

This immediately implies that the IRR < NPV. Caveat of course is that this is all somewhat theorhetical and decisions are not solely made based on IRR and NPV. Before you post misleading comments, please do your HW first.

[ssutunti]

@wstss OWNEDDDD!

[sircwaniak]

Shoudn't you add 40% intead of deacreasing the amount?

[olipop84]

this guy is money!

[kasunrajapaksha]

excellent introduction to WACC

[Deerok4Dragon7]

nice clear clear clear and simple as possible

[ksadreams]

Nice presentation, thanks

[airwaterdirt]

Thanks a lot you are a very precious help keep up the good work, i wish you all the best.