Session 10: Equity Valuation: Valuation Concepts
Reading 35: Return Concepts
LOS h: Explain and calculate the weighted average cost of capital for a company.
Jaime Moreno, a new hire at the venture-capital fund Burkhart Partners, has been tasked with assessing the appeal of various potential equity investments. Moreno has been given the weighted average cost of capital (WACC) for each company. To determine the value of each company’s equity, Moreno should:
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A) |
calculate the firm value using the WACC, then strip out the value of debt. | |
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B) |
strip the effects of debt out of the WACC, then calculate the value of equity. | |
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C) |
calculate the equity value using the WACC, then incorporate the value of debt. | |
WACC is used to value an entire firm. To value the equity, use the WACC to calculate the firm’s value, then subtract the market value of its long-term debt. | 
发表于 2010-4-16 13:02
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