The Lower the WACC, the Lower is the Calculated NPV
The lower the weighted average cost of capital (WACC), the lower is the calculated net present value (NPV). This relationship is crucial for businesses to understand, as it directly impacts their investment decisions and overall financial health.
- Enter the weighted average cost of capital (WACC) in the provided field.
- Enter the net present value (NPV) in the provided field.
- Click the “Calculate” button to see the results below.
The formula to calculate NPV given WACC is: NPV = -C / (1 + WACC)^n, where C is the initial cost and n is the number of periods. However, this calculator uses a simplified version for demonstration purposes.
| WACC | NPV |
|---|---|
| 10% | $500,000 |
| 15% | $342,915 |
| 20% | $237,288 |
- Always use the most accurate and up-to-date WACC value for your calculations.
- Consider using a sensitivity analysis to test how changes in WACC impact NPV.
- Remember that NPV is just one tool for evaluating investments; use it alongside other methods.
What is the difference between WACC and NPV?
WACC is the average after-tax cost of a company’s various capital sources, while NPV is the present value of the expected future cash flows of a project or investment, minus the cost of the investment.
For more information, see the following authoritative sources:
Investopedia: Net Present Value (NPV) Investopedia: Weighted Average Cost of Capital (WACC)