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I have three questions.
Number 1:
How the cost of equity which is the money we will be paying to our shareholders is actual worth of the business and similarly with the cost of debt?Number 2:
WACC is simply the proportion of the equity or debt balances as compared to the total equity and debt then why do we use it to calculate our rate of return?Number 3:
How the WACC actually tells the worth of the business to the investors?Thanks ?
1. The cost of equity is not the actual worth of the business. It is the cost of financing the money raised from equity (and similarly for the cost of debt).
2. That is not what the WACC is.
3. The WACC does not tell the worth of the business. It is the overall cost of financing the capital in the business.
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