Introduction
The Weighted Average Cost of Capital (WACC) is used to measure the Cost of Capital, often applied in Discounted Cash Flow (DCF) analysis to determine a company’s valuation.
WACC calculates the cost of capital by weighing different components, such as Debt and Equity, according to their proportion in the company’s financing structure.
The resulting WACC represents the average cost of funding the business.
How to Use the Cost of Capital Feature
You must be inside a valuation flow to access the Cost of Capital step.
1. Navigate to the Cost of Capital Step
Open a valuation in your workspace.
Proceed through the valuation steps until you reach Cost of Capital.
2. Explore the WACC Tree and Clickable Fields
Once on the Cost of Capital step, you will see a WACC tree diagram that visualises the components of cost of capital.
The first highlighted field represents Unlevered Beta.
You can click on other fields in the WACC tree (such as Risk Premium and Tax Rate etc) to view more detailed information about each.
When you click on a field (e.g., Unlevered Beta), you will have the option to choose the data source:
Peer group median
Industry median
Manual entry
Once selected, the corresponding data will be displayed below and can be adjusted as needed.
3. Adjust Median Values
On the bottom-left panel, you’ll see a selection of median values.
Click on a median value to select it.
You can update the selected median value (shown in green) by entering a new value manually.
If needed, you can add a rationale to document why you made changes.
Additional Notes
Any changes you make to WACC inputs will impact the final valuation results.
Ensure that adjustments align with your valuation assumptions.