Beruflich Dokumente
Kultur Dokumente
CORPORATION
in which E represents the amount of financing ---- achieved through equity, D represents the
amount of financing achieved through debt, rE represents the cost of equity, rD represents the
cost of debt, and tC repr ---- esents the effective tax rate.
The formula applies the cost of equity to the portion of finan ---- cing achieved through
equity and adds this value ---- to the cost of debt applied to the portion of financing achieved
through debt after adjusting for tax impact. This allows managers to arrive at t ---- he cost of
financing the operations of the business, helping to guide th ---- e decision making process of
determining the required ra ---- te of return. This also allows investors to consider how viable a
businesss plans may be based on the cost of financing and the conditions of the competitive
landscape.
The WAC ---- C, then, is a value that lies between the Cost of Equity and the Cost of
Debt, leaning to one side based on how much of the company ---- s financing was achieved by
one method or the other. By using publicly available information, such as the Standard and Poor
credit rating of the ---- company and the associated rate of return of a corporate bond with that
rate, the authors confidence in the accuracy of the calculations is slvightly less than if access to
internal company i ---- nformation was available. Further, the use of a given estimate for the
market risk premium also erodes confidence. Both primary measu ---- res of cost of capital are
compromised by the use of non-specific information, reducing the likelihood that the result of
the calculatio ---- ns is fully accurate.
References
Bondsonline: Composite Bond Rates. (2015, August 21). Retrieved August 23, 2015, from
http://www.bond ---- sonline.com/Todays_Market/Composite_Bon ---d_Yields_table.php
The 3M Company. (2015). Annual report 2014. Retrieved from http://d1lge ---852tjjqow.cloudfront.net/CIK-0000066740/ad82c9d0-87c2-416b-82c49d9967bf4ed0.pdf?noexit=true
3M Co. (2015). Retrieved August 23, 2015, from http://www.standardandpoo ---rs.com/en_US/web/guest/ratings/entity/-/org-details/sectorCode/CORP/entityId/101525
3M Company. (2015, August 21). Retrieved August 23, 2015, from http://finance.yahoo.c ---om/q?s=MMM