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Calculation of Weighted Average Cost of Capital for a Company

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Task: Describe how the WACC is currently calculated for PetSmart Inc. Is this the best approach to be using?

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Solution Summary

This solution explains how to calculate the WACC of PetSmart and then evaluates the process in 609 words with two references included for further research.

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The Weighted Average Cost of Capital (WACC) is calculated using the cost of various capital involved in an organization's finances. "In research, teaching, and application we have found it convenient for some time now to compute the cost of capital as a weighted average of the costs of the various sources of capital" (Nantell & Carlson, 1975, p. 1343). Over the years many professionals and researchers have argued "that these restrictions as to cash-flow patterns are not necessary and that a weighting approach to computing the cost of capital is valid as long as the firm's leverage position is maintained (Nantell & Carlson, 1975, p. 1343). Determining the WACC for PetSmart would be based on the company's various capital expenditures involved to get the business up and running, and how the company stands against its competition or its leveraged position. Whether or not this average is determined before taxes or after is in great debate, but ...

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