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The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm's cost of capital. Importantly, it is dictated by the external market and not by management.
WACC is the weighted average cost of capital, combining the cost of equity and the after-tax cost of debt; t is the time period; n is the number of time periods to "maturity" or exit; g is the sustainable growth rate at that point
The weighted average return on assets, or WARA, is the collective rates of return on the various types of tangible and intangible assets of a company.. The presumption of a WARA is that each class of a company's asset base (such as manufacturing equipment, contracts, software, brand names, etc.) carries its own rate of return, each unique to the asset's underlying operational risk as well as ...
c = cost of capital, or the weighted average cost of capital (WACC). NOPAT is profits derived from a company's operations after cash taxes but before financing costs and non-cash bookkeeping entries. It is the total pool of profits available to provide a cash return to those who provide capital to the firm.
The weighted cost of capital (WACC) is used in finance to measure a firm's cost of capital. WACC is not dictated by management. Rather, it represents the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere.
Since return on invested capital is said to measure the ability of a firm to generate a return on its capital, and since WACC is said to measure the minimum expected return demanded by the firm's capital providers, the difference between ROIC and WACC is sometimes referred to as a firm's "excess return", or "economic profit".
An estimation of the CAPM and the security market line (purple) for the Dow Jones Industrial Average over 3 years for monthly data.. In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.
With the European Commission according to its data bank "AMECO" (Annual Macro-Economic Data) the marginal efficiency of capital is defined as "Change in GDP at constant market prices of year T per unit of gross fixed capital formation at constant prices of year T-.5 [that is, lagged by half a year].