Wacc Write Up

WACC Write up

The weighted average cost of capital (WACC) is the rate that a company to pay all of its security holders to finance its assets. In this assignment I had to find the WACC of Netflix. My first step was to review Netflix’s Balance Sheet, Key Statistics, and Income Statement to retrieve the information required to make the calculation of WACC. First, I wanted to find the market value of the companies debt, so I took the Long Term Debt from my companies Balance Sheet and multiplied that by the yield to maturity found on finra markets website. Following that I took the price per share of Netflix and multiplied it by the shares outstanding to find the market value of equity. After finding my market values I added them together to get my total market value and I divided my debt and equity by the sum to retrieve the weights. Next, I wanted to find my tax rate so I went to the Income Statement of Netflix and retrieved the tax expense and divided it by the income before tax. Following that I found my cost of debt and cost of equity, my cost of debt was the yield to maturity from finra markets. To find my cost of equity I had to use the Capital Asset Pricing Model(CAPM), to use that formula I had to find my market risk premium on the domodaran website multiply that by the beta I calculated and add that to the risk free rate found using a 10 yr bond on finra markets website. Now that I have all the variables I need I can just plug them in to the formula for weighted average cost of capital. I will multiply my cost of debt times the weight of debt, multiplied by 1 subtracted by the tax rate, added to the cost of equity times the weight of equity. Now I have calculated the WACC of Netflix.