After-tax Weighted Average Cost of Capital is based on the cost of each capital structure component net of any corporate-level tax effect of that component
2014
Key concepts
Scholarcy highlights
- Weighted Average Cost of Capital can be applied in a single-year capitalization of net cash flows or multiyear discounted net cash flows valuation
- After-tax Weighted Average Cost of Capital is based on the cost of each capital structure component net of any corporate-level tax effect of that component
- The traditional view of the optimal capital structure is that a company should increase debt until its weighted average cost of capital minimizes its WACC
- This chapter explains the procedure for computing WACC for a public company
- The riskiness of realizing the interest tax shield is an important consideration before one decides to use a WACC, the form of the WACC that assumes a constant ratio of debt to equity
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