DCF – WACC (Weighted Average Cost of Capital)
Articles
What Is WACC (Weighted Average Cost of Capital) and Why It Matters
WACC explained: what it measures, how CAPM and the after-tax cost of debt feed into it, and why it's the discount rate used in every DCF valuation.
How to Calculate WACC Step by Step (Finance Interview Walkthrough)
A step-by-step method for calculating WACC in a finance interview — cost of equity via CAPM, after-tax cost of debt, and market-value weights — with a worked numerical example.
What Is Unlevered Beta? Unlevering and Relevering Beta Explained
What unlevered beta actually measures, why you strip out financing effects before comparing betas across companies, and how the Hamada equation moves between levered and unlevered beta.
How to Calculate WACC With Increased Leverage (Interview Walkthrough)
A step-by-step interview walkthrough of how WACC actually responds to increased leverage: relevering beta with the Hamada equation, recomputing cost of equity, and why WACC doesn't always rise with more debt.
What Is Country Risk Premium in WACC? A Guide for Valuation Interviews
How the country risk premium adjusts WACC for emerging-market risk, why currency and illiquidity adjustments come with it, and how interviewers test this in valuation questions.
How to Calculate WACC for an Emerging Market Subsidiary (Step-by-Step)
A step-by-step walkthrough of adjusting WACC for country risk, currency mismatch, and illiquidity when valuing an emerging-market subsidiary, with full formulas and worked numbers.
Cases
Calculating Unlevered Beta and Adjusting for a Private Company
As a financial analyst, you are tasked with estimating the appropriate beta for a private company that is being valued for an acquisition. Since the company is not publicly traded, you will derive its Levered Beta by first calculating the Unlevered Beta from a set of comparable public companies (peers) and then adjusting it to the private firm's target capital structure.
WACC: The Building Blocks
As a financial analyst, you're asked in an interview: "Walk me through how you'd calculate a company's WACC." Walk through the building blocks — the cost of equity via CAPM, the after-tax cost of debt, and the market-value weights — and show how they combine into the single discount rate used to value the firm.
WACC with Leverage
You're valuing a company and want to understand what would happen to its WACC if it took on significantly more debt. Using the Hamada equation, unlever the company's current beta, relever it at a proposed higher debt-to-equity ratio, and recompute WACC to see the net effect.
International WACC
You're valuing an emerging-market subsidiary using a DCF built around local-currency cash flow forecasts. Your standard domestic WACC model doesn't capture the extra risk of operating in that country, the mismatch between the currency of your cash flows and the currency your risk-free rate is quoted in, or the illiquidity of the underlying business. Walk through how to adjust WACC for the country risk premium, correct the currency mismatch, and layer in an illiquidity premium — then compute the fully adjusted cost of capital.