Cost of capital : Question 3
We agree that the WACC is computed as a weighted average of the after-tax cost of debt and the cost of equity. What would you use as the cost of capital if the company has a net cash position ?
There are two possible approaches, assuming that this cash is relatively structural and not cyclical.
For more information, see chapter 29 of the Vernimmen.
For more information, see chapter 29 of the Vernimmen.