Module VI· DCF Model BuildIntermediate
Question
How do you model the WACC calculation cell?
Answer
WACC = cost of equity x equity weight + after-tax cost of debt x debt weight. Cost of equity often uses CAPM: risk-free rate + beta x equity risk premium. After-tax cost of debt equals pre-tax cost of debt x (1 - tax rate). Use target capital structure, not necessarily current debt / equity if it is not normalized.