Wacc for Verizon Communications Inc

In: Business and Management

Submitted By sfeng
Words 530
Pages 3
Answer the following questions concerning WACC: 1. What is the WACC of the company?
The WACC for Verizon Communications Inc. is 4.74% 2. What does WACC represent to the firm?
The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. It is the rate of return required by investors. Investors use WACC as a tool to value a project. If the project is below WACC, it will not generate enough return for the Investor. 3. How does Beta influence the WACC?
Beta represents the measure of risk of the company. When using the capital asset pricing model, the beta coefficient is an index of risk. When the risk increases, the investor will expect a higher rate of return. So when the beta increases, it will cause the WACC to increase as well. 4. How does the Risk Free Rate influence the WACC?
Another component of the CAPM is the risk free rate, generally taken to be a long-term U.S Treasury bond rate. It is like the opportunity cost for the investors, instead of putting their money in the new investment, they can earn a risk free rate or interest by putting the money into a long-term U.S treasury bond. Therefore, the increase in risk free rate leads to increase in WACC. 5. How does the WACC for a firm and the IRR of a project within the company correlate to each other?
A project’s IRR is the discount rate that forces the PV of the expected future cash flows to equal the initial cash flow. It is an estimate of the project’s rate of return. If IRR exceeds the WACC used to finance the project, then the difference benefits the firm’s stockholders. On the other hand, if the IRR is less than the cost of capital, stockholders must make up the shortfall. 6. Finally, how does the WACC relate to the Capital Structure of your firm?
The capital structure is how a company finances its assets. A company can…...

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