Question

1.How is the WAAC is calculated for tesla, GM, and Ford? WAAC Tesla = 8.7% WACC GM = 5.4% WACC Ford = 9.7%

2. How would you forecast the WACC of each of these companies in a year and why ?

Answer 1

1.weighted average cost of capital for each of the companies are calculated after determination of the capital structure and assignment of the weights of different capital to their capital structure so that the weights of debt capital and equity capital are defined and then the cost of debt and the cost of equity relatively multiplied with the weights and then the weighted average cost of capital of these companies are to be arrived at.

2. I will predict that the the weighted average cost of capital for Tesla will be coming down in coming years but it will go up for companies like Ford and General Motors, because these companies are finding it difficult to borrow money and they will be having difficulty borrow at a lesser rate so this company's cost of capital going to go upward. Tesla has a marvelous and phenomenal growth and it has a reputation on the basis of its electronic car making which is an invention in the car space so it will be getting the capital at lower rate and hence it will help the company in maintaining a lower cost of capital.