How do you treat excess cash when calculating WACC for a cash-rich company?

Excess cash is the cash balance not needed for operations — typically assume 2–5% of revenue as 'operating cash', and the rest is excess.

• Capital structure with net debt: D/(D+E) becomes net debt / (net debt + E). When cash > debt, net debt turns negative — the structure behaves like pure equity financing, and WACC approaches CoE.
• Treat cash separately: apply WACC to operating assets and add cash separately to EV as 'excess cash value'.

Approach 1 is the IB standard. For cash-rich tech companies, net debt is often −$500m or lower, so WACC is nearly identical to CoE.