Factors Affecting WACC Assignment Help

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This is one of the most essential topic for student who are studying capital budgeting under finance. A student needs to understand the factors and their affects on the capital without which a student can’t complete his assignments. You search for factors affecting WACC assignment help ends in Best Factors Affecting WACC Assignment Help Service. now you can easily get expert assistance for your assignments. Weighted cost of capital is affected by factors like increase in the corporate tax rates and debt ratio of the firm. When a company gives away most of its revenue as dividends, WACC increases.

As we have discussed in our earlier assignments that Weighted Average Cost of Capital is the average rate of return a company expects to compensate all its different investors. The weights are the fraction of each financing source in the company’s target capital structure. Now we are going to give you a brief explanation over the factors affecting WACC.

Best factors affecting WACC assignment help service team has divided the factors under two sub heads

1. Controllable factors affecting WACC

• i. Capital structure policy-

a firm has control over its capital structure, targeting an optimal capital structure. As more debt is issued, the cost of debt increases, and as more equity is issued the cost of equity increases.

• ii. Dividend policy-

given that a firm has control over its payout ratio, the breakpoint of the MCC schedule can be changed.

• iii. Investment policy-

it is assumed that when making investment decisions, the company is making investments with similar degrees of risks.

• iv. Economic conditions-

when banks can easily give loans at low rate of interest to increase their stability, then the company’s debt will decrease, and the cost of equity will increase.
2. Uncontrollable factors affecting WACC– a company has no control over:

• i. Level of interest rates-

the level of interest rates will affect the cost of debt and, potentially, the cost of equity, for example, when interest rates increase the cost of debt increases, which increases the cost of capital.

• ii. Tax rates-

tax rates affect the after tax cost of debt. As tax rates increase, the cost of debt decreases, decreasing the cost of capital.

Importance:

As some of these factors are external and some are situations of the company, the study of these factors is necessary as the company is able to determine how the cost of capital and the budget of the company changes.
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