Weighted average cost of capital (WACC) - part 2

In this lesson

1. 0:00 Introduction to WACC calculation
2. 0:42 Step one: calculating cost of equity using CAPM
3. 3:53 Step two: market value of equity calculation
4. 4:16 Step three: cost of debt for bank loan and bonds
5. 6:33 Step four: market value of debt adjustment
6. 7:13 Step five: putting it all together with WACC formula
7. 10:58 Recap and practice guidance

About this lesson

This is a critical technique for FM, AFM, and F3 papers, where WACC calculations form the foundation of investment appraisal decisions. Working through a realistic scenario, you'll see step-by-step how to handle multiple debt types (bank loans and irredeemable bonds), adjust for tax relief on interest, and combine everything using the WACC formula. The tutor demonstrates practical sense-checking at each stage—a technique that maximises exam marks by catching errors early and confirming your numbers make logical sense in context. By the end, you'll understand not just the mechanics of the calculation, but why each component matters and how to tackle variations where companies have different financing structures. The emphasis is on practice and confidence: these calculations are detailed and require precision, but they're entirely manageable with structured repetition.

Duration: 12m