FIN509 MBA Finance | WACC, Free Cash Flow & Business Valuation — Walmart, Apple & Tesla
Follow the link from WACC to free cash flow, enterprise value, and equity value.
1) What is WACC?
WACC is the firm’s blended required return on the capital it uses to fund core operating assets. It averages the cost of equity, debt, and, if any, preferred stock, weighted by their market values.
Plain English: projects earning more than WACC create value; projects below WACC destroy value.
2) Why does WACC matter?
- Hurdle rate for NPV and IRR decisions.
- Discount rate for FCFF valuation.
- Performance yardstick using ROIC − WACC.
- Capital-structure trade-off between tax shields and risk.
3) Start here: game + calculator
These are the two most important interactive tools on this page. Start with the game for intuition, then use the calculator for the numbers.
Start here first
🎮 WACC Interactive Game
Use the game to practice how debt, equity, taxes, and the cost of capital fit together. This is a quick way to build intuition before doing calculations.
Open the WACC Game ↗Main calculation tool
📊 WACC Calculator
Use this calculator for annual bonds, semiannual bonds, coupon rate and bond yield inputs, dividend-discount inputs, and CAPM-based cost of equity.
Open the WACC Calculator ↗Best order: watch the short video, try the game, then use the calculator and the in-class exercises below.
Business valuation video
Connect WACC with cash flow and business valuation. Use the company table’s source dates when comparing figures with examples in this recording.
5) Master formula
Market-value weights
After-tax debt
Project discount rate
WACC = (D / (D + E)) * Kd_after_tax + (E / (D + E)) * Ke
where:
D = market value of debt
E = market value of equity
Kd_after_tax = Kd * (1 - TaxRate)
Ke = cost of equity (CAPM or Dividend Discount Model)
Reminder: Use market values for weights. The debt term in WACC is after-tax because interest expense creates a tax shield.
6) Cost of debt (Kd): bond yield, then after-tax
Bond input
Kd_before_tax = RATE(nper, couponRate*1000, -(price - flotation_costs), 1000)
Kd_after_tax = Kd_before_tax * (1 - tax_rate)
Bond input
Kd_before_tax = RATE(nper*2, couponRate*1000/2, -(price - flotation_costs), 1000) * 2
Kd_after_tax = Kd_before_tax * (1 - tax_rate)
Flotation costs: flotation_costs = flotation_percent × price. Use price − flotation_costs as the net proceeds.
7) Cost of equity (Ke): CAPM or Dividend Discount Model (DDM)
| Method | Formula | When to use |
|---|---|---|
| CAPM (beta given) |
1 CAPM (Cost of Equity)
Ke = rRF + β * (Rm - rRF)
Ke = rRF + β * MRP
|
When beta and a market risk premium assumption are available. |
| DDM (dividend given) |
2 Dividend Discount Model (DDM)
Ke = D1 / (P0 - flotation_costs) + g
flotation_costs = flotation_percent * P0
|
Dividend-paying firms with stable growth assumptions. |
8) Excel pricing toolbox
CouponRate means the bond's annual coupon rate in decimal form. Example: an 8% coupon means CouponRate = 0.08.
Bond price (annual)
Price = ABS( PV(YTM, YearsToMaturity, CouponRate*1000, 1000) )
YTM (annual)
YTM = RATE(YearsToMaturity, CouponRate*1000, -Price, 1000)
Bond price (semiannual)
Price = ABS( PV(YTM/2, YearsToMaturity*2, CouponRate*1000/2, 1000) )
YTM (semiannual)
YTM = RATE(YearsToMaturity*2, CouponRate*1000/2, -Price, 1000) * 2
Duration (example)
=DURATION(DATE(2025,2,4), DATE(2035,2,4), 5%, 7%, 2, 0) → 7.80
Duration interpretation: if duration = 7.80, then a +1% rate shock implies an approximately −7.8% price change.
9) In-class exercises
Use these worked examples as your guide for Homework 1 and 2 below. Watch the walkthrough, then build your own Excel solution.
FIN509 Chapter 14 | In-Class Exercises 1–4 — Step-by-Step Math & Excel
Work through IBM WACC, semiannual debt cost, equity flotation, and financing weights.
Exercise 1 — IBM WACC ▾
Question
Debt: $10m, coupon rate 5%, 10 years, price $950, flotation 7% of price, tax 40%.
Equity: $20m, D1 = $5, P0 = 50, g = 5%, flotation = 0.
Task: Compute IBM’s WACC.
Show solution ▾
Answer (structure):
Wd = 1/3, We = 2/3
Kd = RATE(10, 5%*1000, -(950 - 950*7%), 1000) * (1-40%) = 3.98%
Ke = 5/(50-0) + 5% = 15.00%
WACC = (1/3)*3.98% + (2/3)*15.00% = 11.33%
Exercise 2 — After-tax cost of debt (semiannual) ▾
Question
Noncallable bond, 20 years to maturity, 9.25% annual coupon paid semiannually, price = 1075, par = 1000, tax = 40%.
Find the after-tax cost of debt.
Show solution ▾
After-tax Kd
= RATE(20*2, 9.25%*1000/2, -1075, 1000) * 2 * (1-40%)
= 5.08%
Exercise 3 — Cost of equity (DDM with flotation) ▾
Question
D1 = 1.25, P0 = 27.50, g = 5.00%, flotation = 6% of price.
Find the cost of equity.
Show solution ▾
Ke
= 1.25 / (27.5 - 0.06*27.5) + 5%
= 9.84%
Exercise 4 — WACC from weights ▾
Question
Total capital raised: $10m, debt $3m, equity $7m.
Set up the WACC formula from the financing weights.
Show solution ▾
Wd = 3/10
We = 7/10
WACC = (3/10)*Kd_before_tax*(1-T) + (7/10)*Ke
Or, if Kd is already after tax:
WACC = (3/10)*Kd_after_tax + (7/10)*Ke
A numerical WACC requires the component costs.
Homework — WACC in Excel
Homework 1 & 2 — Due with the final exam
No written solution is shown here. Use In-Class Exercise 1 as the reference for Homework 1, and In-Class Exercises 2–4 as the reference for Homework 2. Watch the homework walkthrough for step-by-step guidance. Assume $1,000 par value for both bonds. Keep full precision in Excel and round your final displayed percentages.
Homework 1 — Annual coupon bond + dividend growth model ▾
Question
A firm is financed with debt and equity.
Debt
- Market value of debt: $12 million
- Annual coupon rate: 6.0%
- Years to maturity: 12
- Current bond price: $960
- Flotation cost: 5% of price
- Tax rate: 35%
Equity
- Market value of equity: $24 million
- Expected dividend next year, D1: $3.20
- Current stock price, P0: $40.00
- Growth rate, g: 4.0%
- Flotation cost on equity: 0
What to solve
- Compute the before-tax cost of debt.
- Compute the after-tax cost of debt.
- Compute the cost of equity using the dividend growth model.
- Compute the firm’s WACC.
Reference: use Exercise 1 on this chapter page as your guide.
Homework 2 — Semiannual bond + CAPM ▾
Question
A firm is financed with debt and equity.
Debt
- Market value of debt: $8 million
- Annual coupon rate: 8.5%
- Coupon payments: semiannual
- Years to maturity: 18
- Current bond price: $1,040
- Flotation cost: 4% of price
- Tax rate: 30%
Equity
- Market value of equity: $22 million
- Risk-free rate: 4.2%
- Beta: 1.15
- Market risk premium: 5.8%
What to solve
- Compute the before-tax cost of debt using semiannual bond inputs.
- Compute the after-tax cost of debt.
- Compute the cost of equity using CAPM.
- Compute the debt weight and equity weight.
- Compute the firm’s WACC.
Reference: use Exercises 2–4 on this chapter page as your guide.
FIN509 Chapter 14 | Homework 1 & 2 — Annual & Semiannual Bonds, DDM & CAPM
Use this walkthrough to check your method and follow the Excel steps for both homework questions.
FYI — Optional interest-rate analysis
Optional enrichment after the homework: explore interest-rate effects on WACC and firm value. The NYU industry analysis video is with the Damodaran reference and 4D chart below.
Interest rates, WACC & firm value ▾
FIN509 MBA | WACC, Interest Rates & Firm Value — Investment Decisions
Connect required returns and borrowing costs to project decisions and valuation sensitivity.
Ask Maggie AI — Chapter 14 study help
Ask about WACC, the four exercises, homework methods, bond periods, dividend growth, CAPM, or Excel formulas. Answers come from this chapter’s saved study guide.
10) WACC calculator & company presets
The three company presets reproduce the provider snapshots checked November 3, 2026 using rounded published inputs. Edit the assumptions to build your own estimate.
Main WACC tool
Use the full JUFinance WACC Calculator
This is the main external calculator for bond-based cost of debt, CAPM, and dividend-discount cost of equity.
Open the WACC Calculator ↗Capital structure (market values)
Costs & tax
Weights: —
Company presets — checked November 3, 2026
Select a company to load sourced inputs and display its calculation. E and D are in billions of USD.
11) Damodaran + Interactive 4D chart
Use this to compare typical WACC, cost of equity, and leverage across industries. This is useful for sanity-checking project discount rates.
Industry reference
Damodaran — Cost of Capital by Sector (US)
January 2026 U.S. dataset: compare industry averages for beta, financing weights, cost of equity, and WACC. Use its reported after-tax debt cost when reconstructing the table; the displayed tax-rate column does not mechanically reproduce every after-tax debt cost.
Open Damodaran sector page ↗Interactive visualization
Interactive 4D industry chart
Rotate the chart and hover over points to compare industries.
Open the 4D chart ↗FIN509 MBA | Why WACC Differs Across Industries — NYU Damodaran 2026 Analysis
Compare industry risk, financing weights, and the cost of capital using NYU’s January 2026 industry dataset.
How to read it: x = D/E (%), y = Beta, z = WACC, color = Tax rate. Drag to rotate and hover for exact values.
Chart access: this embed loads the original hosted chart directly. If your browser or LMS blocks embedded pages, use “Open the 4D chart” above.
Chart access: this embed loads the original hosted chart directly. If your browser or LMS blocks embedded pages, use “Open the 4D chart” above.
12) Company type ↔ debt & WACC
| Company Type | Debt Level | WACC Level | Reasoning | Example |
|---|---|---|---|---|
| Startup | Low | High | High risk, limited cash flow → equity funding preferred. | Early-stage tech startup |
| High-Tech | Low–Moderate | High | High growth and risk, so firms avoid too much debt burden. | Biotech firm |
| Retail | Moderate–High | Moderate | Stable cash flows allow some leverage. | Supermarket chain |
| Utility | High | Low–Moderate | Predictable cash flows support heavy debt. | Electric company |
| Manufacturing | Moderate | Moderate | Balanced capital structures are common. | Auto manufacturer |
| Mature firm | High | Low | Stable and predictable cash flows usually lower WACC. | Coca-Cola |
Company WACC — latest available figures checked today
Checked November 3, 2026 (U.S. Eastern time)
These are GuruFocus model estimates available when checked, with each company’s displayed metric date. They are not a synchronized November 3 market-close dataset, live quotes, or company-issued hurdle rates.
| Company | Reported WACC | Provider’s metric date | Source |
|---|---|---|---|
| Walmart (WMT) | 7.08% | 2026-11-03 | GuruFocus ↗ |
| Apple (AAPL) | 10.23% | 2026-11-02 | GuruFocus ↗ |
| NVIDIA (NVDA) | 17.14% | 2026-11-03 | GuruFocus ↗ |
| Tesla (TSLA) | 16.40% | 2026-11-02 | GuruFocus ↗ |
| Delta Air Lines (DAL) | 11.07% | 2026-11-02 | GuruFocus ↗ |
| Coca-Cola (KO) | 5.69% | 2026-11-02 | GuruFocus ↗ |
| ExxonMobil (XOM) | 2.06% | 2026-11-03 | GuruFocus ↗ |
More companies linked on this chapter page ▾
| Company | Reported WACC | Provider’s metric date | Source |
|---|---|---|---|
| Microsoft (MSFT) | 11.64% | 2026-11-02 | GuruFocus ↗ |
| Amazon (AMZN) | 13.35% | 2026-11-02 | GuruFocus ↗ |
| Alphabet (GOOGL) | 12.84% | 2026-11-02 | GuruFocus ↗ |
| Meta Platforms (META) | 13.73% | 2026-11-02 | GuruFocus ↗ |
| Berkshire Hathaway (BRK.B) | 5.54% | 2026-11-02 | GuruFocus ↗ |
| Broadcom (AVGO) | 14.63% | 2026-11-02 | GuruFocus ↗ |
| UnitedHealth (UNH) | 8.46% | 2026-11-02 | GuruFocus ↗ |
| JPMorgan Chase (JPM) | 8.12% | 2026-11-02 | GuruFocus ↗ |
| Eli Lilly (LLY) | 8.11% | 2026-11-03 | GuruFocus ↗ |
| Costco (COST) | 8.61% | 2026-11-02 | GuruFocus ↗ |
| Oracle (ORCL) | 14.16% | 2026-11-02 | GuruFocus ↗ |
Read the inputs: the provider combines market equity with average book debt, CAPM with a 6% equity risk premium, interest expense divided by average debt, and its TTM effective tax rate. This may differ from a forward-looking WACC using marginal borrowing yields and a marginal tax rate. Apple’s reported 0% debt cost is a data/model limitation, not free borrowing. ExxonMobil’s unusually low estimate reflects the provider’s negative beta; inspect it before choosing a project discount rate. Financial firms such as JPMorgan require special valuation treatment, so their WACCs are not directly comparable with ordinary industrial firms.
The NYU industry reference remains a January 2026 analysis. Company values above and industry averages have different dates and methodologies.
13) GuruFocus WACC links
Use these as a starting point and verify the inputs with primary sources.
15) Notes & extras
- Assign: source beta, risk-free rate, market risk premium, YTM, and tax rate, then justify the choices.
- Compare current structure versus target D/E.
- Run ±1% sensitivity on RE and RD.