The Impact of WACC on Capital Budgeting and Structure Essay

The Impact of WACC on Capital Budgeting and Structure - Essay ExampleThe stolon step is to prepare comprehensive cash flow estimate information for the project under consideration. This step is then followed by forecasting a fitting discount rate to be used in the evaluation of the net present value (NPV). This discount rate is the return required by the investors to avenge for handing over their capital to the company. It is also known as the companys hurdle or burthen average cost of capital (WACC).(singh 2005. 26)According to Donald Riggin of Albert Risk Management Consultants, The weighted average cost of capital is the companys cost of maintaining capital, of owning capital. (2007. Para.4) theoretically speaking, both the concept and its importance as a companys performance measure are very well up established. In fact, the companys failure to make up its debt cost is considered by many experts to be the most obvious crisis indicator. The accuracy of the WACC calculations a re extremely important to vacate such scenarios as they assist the administration determining projects that are most suitable for the company.