Costo de capital

The financial world is full of terms that may seem intimidating, but when broken down and understood, they open doors to greater control and knowledge about our finances. An essential concept in financial management is the Weighted Average Cost of Capital (WACC), which helps us measure the value creation of an investment. Let's go deeper into this topic and discover how it can be applied in real cases.

What is the weighted average cost of capital?

The Weighted Average Cost of Capital is an indicator used to evaluate the cost of a company's various sources of financing. These sources commonly include debt and equity. The WACC ensures that the proportion of each source of financing and its respective cost is taken into account.

• Debt: Its cost is the interest rate the company pays on loans acquired.
• Equity: Its cost is the rate of return expected by shareholders.

Therefore, the WACC integrates these rates considering the tax burden, thus providing a more accurate view of the financial cost of projects.

How is the weighted average cost of capital calculated?

To really get to grips with this concept, let's calculate it step by step. Let's imagine we have a company that needs one million monetary units for a project and is financed by:

1. Sale of shares: Three thousand shares at one hundred monetary units each, with a cost of capital of seven percent.
2. Credit: Seven hundred thousand monetary units with an interest rate of six percent and a tax rate of thirty-five percent.

Let's follow these steps:

1. Calculate the proportion of each type of financing:

   • Equity (equity): 300,000 monetary units representing 30% (300,000 / 1,000,000).
   • Credit (debt): 700,000 monetary units representing 70% (700,000 / 1,000,000).

2. Apply the formula for WACC:[ \text{WACC} = (\text{Cost of equity}) + (\text{Cost of debt}). \text{Cost of debt}) + (1 - \text{Cost of equity}) \times (1 - \Tax rate})) ]

   • Substituting the values:
     [ \text{WACC} = (0.3 \times 0.07) + (0.7 \times 0.06 \times (1 - 0.35)) ]
   • First, equity: (0.3 \times 0.07 = 0.021).
   • Next, debt: (0.7 \times 0.06 = 0.042)
   • Adjusted for taxes: (0.042 \times 0.65 = 0.0273)
   • Finally, add: (0.021 + 0.0273 = 0.0483)

This gives us a Weighted Average Cost of Capital of approximately 4.83%. This implies that for every monetary unit invested, the company must generate at least 4.83% to cover the cost of capital.

What is the significance of the weighted average cost of capital?

The WACC result is fundamental for the company, as it determines the minimum profitability benchmark that a project must exceed to be viable. A lower WACC indicates a lower cost of financing, which is advantageous for riskier projects or for maximizing profits.

For example, investments promising a return of less than 4.83% would probably not be profitable, as they would not even cover the cost of capital needed to finance them. A high WACC, on the other hand, may signal that financing is expensive, perhaps pushing the company to seek funds on more favorable terms.

Practical application and additional resources

With the knowledge gained, we can apply this calculation to specific cases, helping to evaluate new investments or the structure of existing ones. In addition, for those who wish to go deeper, it is relevant to practice with specific templates, where the variables can be customized according to the needs of the business.

This exercise not only allows you to put new knowledge into practice, but also to evaluate the competitiveness of your company in the market, understand the attractiveness of investment opportunities and ensure that they are aligned with the desired financial objectives.

To conclude this exploration, I invite all curious minds to develop their own calculation exercise. You can find templates and supporting resources that will allow you to apply this knowledge to your own business context. Start transforming your business decisions with sound and informed financial knowledge!