Tutor profile: Claude B.

How is calculated the Weighted Average Cost of Capital (WACC) of an organization?

An organization could have different sources of funds to finance its operations. The WACC determines the cost of each source and the percentage of them used by the company to determine the total cost of the funds used to finance the operations of the organization. Common Stock % * Cost of Equity Preferred Stock % * Cost of Preferred Dividends Debt % * Cost of Debts * (1 - Tax Rate) The cost of the debt is tax deductible

Please explain the concept of Net Present Value? How can you use this tool to evaluate projects?

The Net Present Value (NPV) process evaluates the cash flows of a project over time. A company has a project to invest in and want to know if the project will be profitable over time. The investment would need to produce enough cash flow over time to recuperate the initial investment. The cashflows over time are evaluated at the present value using the proper discounted rate. A project that has a positive Net Cash flow could be selected. The project with the higher Net Cash flow should be selected.

Why the budget process is important for an organization

The Budget process will give the opportunity to an organization to evaluate if the mission and goals of the company are profitable. The budget process is a brainstorming between the different division of the company to evaluate how financially the organization can be successful and profitable with the mission and goals of the organization.