le Coût Moyen Pondéré du Capital CMPC (séance 5.0) #Gestion_Financière_S5

Introduction

This tutorial aims to explain the concept of the Weighted Average Cost of Capital (WACC), also known as Coût Moyen Pondéré du Capital (CMPC), as discussed in the video by AZIZ BBD. Understanding WACC is crucial for financial management, as it helps evaluate investment opportunities and assess the cost of capital for a business.

Step 1: Understanding the Components of WACC

To calculate WACC, you need to understand its key components:

• Equity: The capital raised from shareholders, which has a cost associated with it known as the cost of equity.
• Debt: Borrowed funds that have an associated cost, known as the cost of debt.
• Market Value: Use the market value of equity and debt to determine the proportion of each in the overall capital structure.

Practical Tip

Make sure to use the market value of the equity and debt rather than book values for a more accurate calculation.

Step 2: Calculating the Cost of Equity

The cost of equity can be estimated using the Capital Asset Pricing Model (CAPM):

1. Identify the Risk-Free Rate: Usually the yield of government bonds.
2. Determine the Market Risk Premium: The expected return of the market minus the risk-free rate.
3. Calculate Beta: A measure of how much the stock price is expected to change in relation to market changes.

The formula for cost of equity is:

Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium

Common Pitfall

Ensure you use accurate and up-to-date figures for the risk-free rate and beta to avoid skewed results.

Step 3: Calculating the Cost of Debt

The cost of debt is the effective rate that a company pays on its borrowed funds. It can be calculated as follows:

1. Identify the total interest expense for the year.
2. Determine the average debt outstanding during the same period.

The formula for cost of debt is:

Cost of Debt = Total Interest Expense / Average Debt Outstanding

Practical Application

When dealing with multiple types of debt (e.g., bonds, loans), calculate the weighted average based on the proportion of each type of debt.

Step 4: Putting It All Together

Now that you have both the cost of equity and cost of debt, you can calculate WACC using the following formula:

WACC = (E/V * Re) + (D/V * Rd * (1 - Tc))

Where:

• E = Market value of equity
• D = Market value of debt
• V = E + D (Total market value of the firm)
• Re = Cost of equity
• Rd = Cost of debt
• Tc = Corporate tax rate

Example Calculation

1. Assume:

   • Market value of equity (E) = $600,000
   • Market value of debt (D) = $400,000
   • Cost of equity (Re) = 8%
   • Cost of debt (Rd) = 5%
   • Tax rate (Tc) = 30%

2. Total value (V) = $600,000 + $400,000 = $1,000,000

3. Plug into the formula:

WACC = (600,000/1,000,000 * 0.08) + (400,000/1,000,000 * 0.05 * (1 - 0.30))
WACC = 0.048 + 0.014
WACC = 0.062 or 6.2%

Conclusion

The Weighted Average Cost of Capital (WACC) is a vital metric for assessing the cost of financing for a business. By understanding its components and how to calculate it, you can make informed financial decisions. Next steps include applying this knowledge to evaluate different investment opportunities and better manage your capital structure.