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175 – 265 words
Cite at least one (1) peer-reviewed reference
Respond to the following:
Dr. Bill Berry
I started my CPA Firm life by calculating the Weighted Average Cost of Capital (WACC). I learned very quickly that investors (equity) expect a higher return than most banks. The long formula for WACC is the cost of debt multiplied by the percentage of debt multiplied by one minus the tax rate (since interest is tax deductible) and the cost of equity multiplied by the percentage of equity. This total is the firm’s hurdle rate.
Why is this the rate that must be earned?
Corporate Finance Institute. (2020, February 29). WACC. Corporate Finance Institute; Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-wacc-formula/