Weighted Average Cost of Capital (WACC) Analysis for Automotive Holding Group Limited

Business financial systems
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Introduction
The presentation will analyse the component
of weighted average cost of capital (WACC)
and the computation method of the same in
detail. The presentation will further analyse
the present WACC of the entity Automotive
Holding Group Limited. Automotive Holding
Group Limited is the diversified automotive
logistics and retailing group along with the
operations in each mainland state of New
Zealand and Australia.

Discussion
As most of the firms are highly
dependent on borrowed fund for their
business operation cost of the capital
becomes crucial parameter while
assessing the potential of the firm
regarding net profitability. Investors
as well as analysts use WACC to
analyse the return on investment.
WACC is computation of the capital
cost for the firm under which each of
the capital category is weighted on
proportionate basis.

Formula used for computing the WACC is –
WACC = E/V * Re + D/V * Rd * (1 – Tc)
It is computed through multiplying the cost of
each capital component by the proportional
weight. After that the sum of the result is
considered and is multiplied by (1 – corporate
rate of tax).