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Do you use market value weights or book value weights of debt and equity to arrive at the weights when computing WACC?

The weight of debt and equity are important components of the WACC. The WACC which you use as your discount rate in most DCF models plays a big role in the resulting valuation. It is important to get this right. Would you prefer to use the market value weights or book value weights of debt and equity to arrive at the weights when computing WACC?

We address this question here on this page: “Do you use market value weights or book value weights of debt and equity to arrive at the weights when computing WACC?

Are short-term debt and current portion of long-term debt included in debt when computing the weight of debt?

The weight of debt is an important component of the WACC formula. In estimating the weight of debt, would you consider short-term debt and the current portion of long-term debt as debt? What about notes payable and accounts payable?

On this page, we consider this question: “Are short-term debt and current portion of long-term debt included in debt when computing the weight of debt?”

What are Discount Rates? How will you explain it to a layman?

The discount rate is the cost of capital when valuing assets. This is a technical explanation finance professionals will understand. How will you explain it to a layman?

This page addresses this question. “What are Discount Rates? How will you explain it to a layman? “

Is there really a Risk-Free Rate?

You use the risk-free rate to estimate your discount rate when using the CAPM. Is there really a Risk-Free Rate?