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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Cost of Capital
Hi, can you please clarify calculating the cost of capital? How do you when to use the weighted avg cost of capital and when do you use fisher formula?
I assume you are actually asking when we discount using the nominal WACC and when we use the real WACC.
We either discount the nominal (actual) cash flows at the nominal (actual) cost of capital.
The alternative is to discount the real (current price) cash flows at the real cost of capital.
We always use the first method unless the question specifically says to use the real cost of capital, or unless it is an inflating perpetuity (in which case it is impossible to use the first method).
You use the fisher formula to get the real WACC when you are given the nominal WACC, or vice versa.
I do suggest that you watch my free lectures on this. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.