why weighted average cost of capital hurts shareholders ?
DESCRIPTION
Weighted Average Cost of Capital (WACC) does not align with the manner in which cash flows actually occur in a business enterprise, leading to financial shocks that eventually hurts shareholder wealth.TRANSCRIPT
Copyright 2013: Rajesh D. Mudholkar, Author - The Timeless Essence of Financial Science. http://valueerodingfallacies.blogspot.in
WACCWACCviolates the violates the WYDIWYPWYDIWYP
principleprinciple(What You Do Is What You Plan)(What You Do Is What You Plan)
Copyright 2013: Rajesh D. Mudholkar, Author - The Timeless Essence of Financial Science. http://valueerodingfallacies.blogspot.in
$50
L
Interest
10%
$50
E
ROE20%
Project cost
$100PLC
WACC15%
Copyright 2013: Rajesh D. Mudholkar, Author - The Timeless Essence of Financial Science. http://valueerodingfallacies.blogspot.in
$100
PLC
$20
$20$20 $20$20 $5
Profit
5
Copyright 2013: Rajesh D. Mudholkar, Author - The Timeless Essence of Financial Science. http://valueerodingfallacies.blogspot.in
$5
PLC
L
ThankYou!
E
Hey!WACC’sunfair!
Copyright 2013: Rajesh D. Mudholkar, Author - The Timeless Essence of Financial Science. http://valueerodingfallacies.blogspot.in
E
# @ % #Why didn’tYou plan
That way??
CompanyLaw
Principle:Pay lenders
First
PLCSorry!
Copyright 2013: Rajesh D. Mudholkar, Author - The Timeless Essence of Financial Science. http://valueerodingfallacies.blogspot.in
E
# @ % #Why didn’tYou plan
That way??
CompanyLaw
Principle:Pay lenders
First
PLCSorry!