Answer to Question #195954 in Finance for Natalie

Question

How do I calculate Wacc NPV and IRR

Answer 1

Wacc is computed as the product of the cost of each source of capital(debit and equity) and it's relevant weight by market value and then summing them to determine the total

$WACC=(\frac{E}{V} \times R_e)+(\frac{D}{V}\times R_d\times(1-T_c))$

where;

E=market value of the firm's equity

D=market value of the firm's debit

V=E+D

Re=c0st of equity

Rd=cost of debit

Tc=corporate tax rate

$NPV=r\times1-(1+i)^{-n}$

i=discount rate (required rate of return per time period).

n=number of time periods

To calculate IRR use the following formula;

$NPV= \space ^TC_t-C_0\sum_1+IRR^{t-1}C_t$

wher;

t=Time period

Co=Initial investment