Net debt for WACC

Basel5's picture
Rank: Baboon | banana points 103

Hello,

In the company I worked in last summer, they used net debt when calculating the WACC.

Assuming you have negative net debt (i.e. net cash). How would you incorporate this into the WACC.

Would you

(A) Just assume net debt to be zero. Thus, WACC = Cost of equity

(B) Assume net debt to be zero but subtract interest on cash deposits

(C) Use total debt instead of net debt

In general, is the industry standard to use net debt or total debt?

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Comments (2)

Most Helpful
Jan 7, 2019

I think using net debt is quite no sense... even for companies with huge amounts of cash. If those firms still have debt they will pay interests on it and WACC includes these interests charges.

Instead I this is more appropriated using FCFE and then cost of equity instead of WACC.

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Jan 7, 2019
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