Weighted average cost of capital (WACC) - part 2
In this video, you'll learn how to apply WACC for project appraisal and understand when to use average versus marginal cost of capital.
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In this lesson
- 0:00 Using WACC for project appraisal
- 0:34 Average versus marginal cost of capital
- 1:13 Question setup and dividend growth model
- 3:02 Calculating ex-dividend share price
- 4:27 Calculating market value weighted average cost of capital
About this lesson
You'll discover that WACC is appropriate for discounting project cash flows only when capital structure remains constant, business risk is unchanged, and the project is marginal to the entity. Through a worked example, you'll calculate the ex-dividend share price using the dividend growth model and then determine the market value weighted average cost of capital by combining the costs of equity and debt with their respective market value proportions. This practical approach is essential for FM, AFM, and other finance modules where investment appraisal and cost of capital calculations form part of your exam requirements.
Duration: 6m
Transcript
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