We must create a manual to know how to evaluate a company project variable costs and...

We must create a manual to know how to evaluate a company project

variable costs and fixed costs?

depreciation?

how to determine waac?

Solutions

Expert Solution

Variable cost is the cost that varies with the change in the output of the company. Per unit variable remains fixed whereas, the total variable cost changes with the change in output. The total variable cost is calculated by multiplying the number of units produced by the per unit variable cost.

Fixed cost is the cost that remains the same at all levels of output of the company. Per unit fixed cost varies with the level of output. The total fixed cost is already given and the per-unit fixed cost is calculated by dividing the total fixed cost by the number of units produced.

Depreciation is the deduction on the fixed assets of the company. As the fixed assets of the company loses their value, to compensate the loss of the value of asset over time, depreciation is required to be applied on the asset.

Methods of depreciation are:

Straight line method represents the fixed amount of deduction from the asset of the company.

Written down method represents a fixed percentage of value of assett is deducted s depreciation over period of time.

Weighted average cost of capital represents the average rate that the company is expected to pay to its shareholders in order to finance the assets of the company.

Formula for Weighted average cost of capital:

WACC= (Weighted of equity * Cost of equity) + (Weighted of debt * Cost of debt) *(1-Tax rate)

ekkarill92 answered 1 year ago

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