Question

why is wacc important to an organization and what impact does wacc have on capital budgeting and structure?

8 years ago - 1 answers

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Lower WACC = Lower Risk = Higher Enterprise Value

WACC is important for a variety of reasons:
1) Greater range of projects the firm can take on, because with a lower WACC, more projects will have a positive NPV
2) Greater Firm Value, and therefore, Greater Stock Price, because you discount cash flows by a smaller number

Here, lots of good (and free) additional info from my grad school professor's website:
pages.stern.nyu.edu/~adamodar/

8 years ago