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Optimal cost of capital, WACC, IPO v merger or acquisition

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1. How would you identify the optimal cost of capital for a organization?

2. What is meant by Weighted Average Cost of Capital (WACC)? Why is WACC a more appropriate discount rate when doing capital budgeting?

3. How does an IPO allow an organization to grow financially? When is a merger or an acquisition, rather than an IPO, a more appropriate way to grow?

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Solution Summary

The expert examines the optimal cost of capital, WACC, and IPO versus merger or acquisition.

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NOTE: IN the OTA's own words (opinion) in accordance with BM rules

Question 1
The key in identifying the optimal cost of capital for any organization is determining the capital structure, that is the mix of debt and equity financing that would maximize the value of the firm as measured, usually, by that firm's stock price. Then, the cost of each of these financing sources are then determined based on ...

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