Apple's WACC The calculation of a firm’s cost of capital for each category of capital that is proportionately weighted is done by the weighted average cost of capital. The following are also included in calculating the WACC: common stock, any other long-term debt, preferred stock, and bonds. The WACC can be increased as the beta and the rate of return on equity continues to increase. For a company to have an increase in WACC, it implies that there is a decrease in valuation and an increase in the risk. The WACC can also be used as a hurdle rate against companies and investors can gauge ROIC performance. To calculate WACC, the following formula can be used: WACC= E/V * Re + D/V * Rd * (1-Tc) Weight Calculation             The company’s assets are financed by their equity and debt, so in order to determine this information; we must calculate the weight of equity and the weight of debt. The market value of equity is also known as the market cap as well. For Apple, their market capitalization is $1501993.770 million. “As of Mar. 2020, Apple’s latest two-year average Short-Term Debt & Capital Lease Obligation was $18494 Mil and its latest two-year average Long-Term Debt & Capital Lease Obligation was $92771 Mil. The total Book Value of Debt (D) is $1111265 Mil” (Apple WACC). Weight of Equity= E/(E+D)= 1501933.770/ (1501933.770 + 111265) = 0.931 Weight of Debt= D/(E+D)= 111265/ (1501933.770 + 111265) = .069 Cost of Equity “The cost of equity is the return a company requires to decide if an investment meets capital return requirements” (Kenton, 2020).  Cost of equity= .660% + 1.09 * 6%= 7.2% This is calculated by risk-free rate of return + beta of asset * (expected return of the market –risk free rate of return). Cost of Debt Apple’s interest expense as of Sept 2019 was $3576 mil and its total book value $111265 mil. Cost of debt= 3576/111265= 3.21% The next step would be to calculate the average tax rate minus 1. So one would take the WACC formula and multiply it by the 1-average tax rate and the formula for this is: WACC = E/(E/D) * Cost of equity + D/(E+D) * Cost of debt * (1-tax rate) The latest tax rate for Apple over the last two years averages to 17.14%. WACC= .931 * 7.2% + 3.21% * (1-17.14%) WACC= 6.89%  For any company, it cost to raise capital. Any firm that is able to generate a higher ROIC% than it costs the company to raise the capital that is necessary for the investment is earning excess returns. With Apple’s WACC being 6.89% and their ROIC 22.56%, it implies that Apple is able to generate higher returns on their investment than it cost the company to raise capital that is needed to invest. As Apple continue to generate positive excess returns on new investments in the future, they will see their value increase as the growth continues to increase.  2 Corinthians 9:10AMP says, “Now He who provides seed for the sower and bread for the food will provide and multiply your seed for sowing [that is, your resources] and increase the harve.

1. Apple's WACC
The calculation of a firm’s cost of capital for each category of
capital that is proportionately weighted is done by the weighted
average cost of capital. The following are also included in
calculating the WACC: common stock, any other long-term
debt, preferred stock, and bonds. The WACC can be increased
as the beta and the rate of return on equity continues to
increase. For a company to have an increase in WACC, it
implies that there is a decrease in valuation and an increase in
the risk. The WACC can also be used as a hurdle rate against
companies and investors can gauge ROIC performance. To
calculate WACC, the following formula can be used:
WACC= E/V * Re + D/V * Rd * (1-Tc)
Weight Calculation
The company’s assets are financed by their equity and
debt, so in order to determine this information; we must
calculate the weight of equity and the weight of debt. The
market value of equity is also known as the market cap as well.
For Apple, their market capitalization is $1501993.770 million.
“As of Mar. 2020, Apple’s latest two-year average Short-Term
Debt & Capital Lease Obligation was $18494 Mil and its latest
two-year average Long-Term Debt & Capital Lease Obligation
was $92771 Mil. The total Book Value of Debt (D) is $1111265
Mil” (Apple WACC).
Weight of Equity= E/(E+D)= 1501933.770/ (1501933.770 +
111265) = 0.931
Weight of Debt= D/(E+D)= 111265/ (1501933.770 + 111265) =
.069
Cost of Equity
“The cost of equity is the return a company requires to decide if
an investment meets capital return requirements” (Kenton,
2020).
Cost of equity= .660% + 1.09 * 6%= 7.2%
This is calculated by risk-free rate of return + beta of asset *

2. (expected return of the market –risk free rate of return).
Cost of Debt
Apple’s interest expense as of Sept 2019 was $3576 mil and its
total book value $111265 mil.
Cost of debt= 3576/111265= 3.21%
The next step would be to calculate the average tax rate minus
1. So one would take the WACC formula and multiply it by the
1-average tax rate and the formula for this is:
WACC = E/(E/D) * Cost of equity + D/(E+D) * Cost of debt *
(1-tax rate)
The latest tax rate for Apple over the last two years averages to
17.14%.
WACC= .931 * 7.2% + 3.21% * (1-17.14%)
WACC= 6.89%
For any company, it cost to raise capital. Any firm that is able
to generate a higher ROIC% than it costs the company to raise
the capital that is necessary for the investment is earning excess
returns. With Apple’s WACC being 6.89% and their ROIC
22.56%, it implies that Apple is able to generate higher returns
on their investment than it cost the company to raise capital that
is needed to invest. As Apple continue to generate positive
excess returns on new investments in the future, they will see
their value increase as the growth continues to increase.
2 Corinthians 9:10AMP says, “Now He who provides seed for
the sower and bread for the food will provide and multiply your
seed for sowing [that is, your resources] and increase the
harvest of your righteousness [which shows itself in active
goodness, kindness, and love].
References:
Kenton, W. (2020, January 29). Cost of Equity.
https://www.investopedia.com/terms/c/costofequity.asp.
Apple WACC %. Apple WACC % | AAPL - GuruFocus.com.
https://www.gurufocus.com/term/wacc/AAPL/WACC/Apple inc.
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3. REFERENCES CITATION
Caterpillar Inc. WACC
Top of Form
WACC stands for "Weighted Average Cost of Capital."
According to Pablo Fernandez, PhD, “The WACC is just the
rate at which the Free Cash Flows must be discounted to obtain
the same result as in the valuation using Equity Cash Flows
discounted at the required return to equity. The WACC is
neither a cost nor a required return: it is a weighted average of a
cost and a required return.” The text provides the formula for
WACC to be WACC = (ke * We) + (kp * Wp) + (kd/(pt) [1 –
t] * Wd) where:
· WACC = Weighted average cost of capital
· ke = Cost of common equity capital
· We = Percentage of common equity in the capital structure, at
market value
· kp = Cost of preferred equity
· Wp = Percentage of preferred equity in the capital structure, at
market value
· kd/(pt) = Cost of debt (pre-tax)
· t = Tax rate
· Wd = Percentage of debt in the capital structure, at market
value
(Bruner, Eades, Schill, 2018). WACC can also
be calculated using different formulas to reach a similar result

4. since, as Fernandez defined, WACC is not a cost nor
a required return. To calculate the WACC for Caterpillar
Inc., there will be a few different numbers calculated first, then
those numbers will be applied to the formula: WACC=E/(E +
D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate)
where “E” is the market value of equity and “D” is the book
value of debt. This formula is similar to the formula used in
the text but combines different values into fewer pieces of the
equation.
Referencing Caterpillar Incorporated’s 10-k, the company’s “E”
would be $64656.440 million. To find the book value of debt,
one would add the two-year average Short-Term Debt & Capital
Lease Obligation and the two-year average Long-Term Debt &
Capital Lease Obligation together, meaning $11464.5 +
$25640.5 = $37105. As of March 2020, the cost of equity for
Caterpillar Inc. Is 6.54%, using the capital asset pricing
model. Looking back at historical financial
statements, Caterpillar’s interest expense in December. 2019
was $421 million (positive), and it was previously established
that “D” is $37105 million (“CAT WACC %”, 2020). Therefore,
cost of debt is interest expense/debt, equaling 1.1346%. The
final piece of the initial equation to calculate is the average tax
rate for the company. To stay consistent with the previous
calculations, a two-year average will be calculated. For CAT,
the two-year average tax rate is 22.03%. When going back to
the original equation of WACC=E/(E + D)*Cost of Equity+D/(E
+ D)*Cost of Debt*(1 - Tax Rate), one can fill in the
calculated number for each corresponding letter or value.
WACC= 0.6354*6.54%+0.3646*1.1346*(1-22.03%). Therefore,
Caterpillar Incorporated’s WACC is 4.48%. The WACC can
also change very quickly based on the company’s performance,
the industry overall, and which method is used to calculate it.
Because of these varying effects, it is very important to
know why WACC is being calculated the specified way, not
just what the WACC is.

5. References
Bruner, R. F., Eades, K., and Schill, M. (2018). Case Studies in
Finance (8th Edition). New York, NY: McGraw-Hill Education.
Caterpillar Incorporated. (2020-2019). Form 10-K 2018-2016
Retrieved from SEC EDGAR Website https://www.sec.gov/cgi-
bin/viewer?action=view&cik=18230&accession_number=00000
18230-20-000056&xbrl_type=v#
Caterpillar WACC %. (2020, March). Retrieved from
https://www.gurufocus.com/term/wacc/NYSE:CAT/WACC-
/Caterpillar#:~:text=As of today, Caterpillar's weighted, It is
earning excess returns.
Fernández, P. (2010). WACC: Definition, Misconceptions, and
Errors. Business Valuation Review, 29(4), 138–144. doi:
10.5791/0897-1781-29.4.138
Bottom of Form
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REFERENCES CITATION

7. Discussion Board 685: LIBOR
Definition
The finance in practice box for Chapter 23 discusses how
LIBOR is set and its relationship to the treasury bill rates.
LIBOR stands for the London Interbank Offered Rate and
EUIBOR stands for the Euro Interbank Offered Rate. They are
“two key benchmark interest rates used in a plethora of
financial contracts” (Eisl et al, 2017). Global-rates defines
LIBOR as an indicative average interest rate at which a
selection of banks (the panel banks) are prepared to lend one
another unsecured funds on the London money market.”
Interestingly, LIBOR is calculated for 7 different maturities and
in 5 different currencies: dollars, euros, the Japanese yen, the
pound sterling, and the Swiss Franc (Brealey et al, 2020).
LIBOR rates are published and managed by the ICE Benchmark
Administration, which makes selections on panel banks with the
assistance of Foreign Exchange and Money Markets Committee
(FX&MMC) (Brealey, 2020 and LIBOR). They base their
selection off of banks market volume, reputation, and
knowledge of currency concerns. LIBOR rates are not
calculated based on actual
Significance
LIBOR rates is viewed as the “most important
benchmark in the world for short-term interest rates” (LIBOR).
The biggest factor is using it as a base rate for setting interest
rates in loans, savings, and mortgages. Because they are used
as a base rate for other products, is the reason why they are
monitored by such a big organization and with many panel
banks worldwide (LIBOR). Eisl, Jankowitsch, and
Subrahmanyam discussed the impact on the integrity of these
rates, the potential for manipulation, and the effect it has
causing potentially global chaos in the markets. They found

8. “such alternative rate fixings, particularly methodologies that
eliminate outliers based on the time-series information, and
larger sample sizes, could significantly reduce the effect of
manipulation” (2013).
Biblical Integration
“You shall not charge interest on loans to your brother, interest
on money, interest on food, interest on anything that is lent for
interest” (Deuteronomy 23:19, ESV).
References
Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of
Corporate Finance. New York, NY: McGraw-Hill Education.
Eisl, A., Jankowitsch, R., & Subrahmanyam, M. G. (2017). The
manipulation potential of Libor and Euribor. European Financial
Management, 23(4), 604-647.
Eisl, A., Jankowitsch, R., & Subrahmanyam, M. G. (2013). Are
interest rate fixings fixed? an analysis of libor and euribor. An
Analysis of Libor and Euribor (January 15, 2013).
LIBOR (n.d.). LIBOR, information about the London Interbank
Offered Rate. Global-rates.com. Retrieved from
https://www.global-rates.com/interest-rates/libor/libor-
information.aspx
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9. DB # 685 Fear Index
Top of Form
The Volatility Index also know as VIX Index, on a
global basis, it recognized to be the most valuable measures of
volatility that is widely report the financial media and followed
closely by a variety of market participations as a daily market
indicator. This shows an expectation of 30-day forward-looking
volatility for the market. “Derived from the price inputs of the
S&P 500 index options, it provides a measure of the market risk
and investors’ sentiments” (Kuepper, 2020). VIX values are
used to help assist investors, research analysts, and portfolio
managers to measure the market risk before making an
investment decision. Other indicator, unlike the CBOE
Volatility Index, measures a different type of volatility, which
makes this index uniquely different. Other indicators measure
the level of price fluctuations, while VIX measures the future.
Volatility is a statistical measure for financial
instruments like stocks, to the degree of variation in their

10. trading price observed over a certain period of time. As the
price swings continue to become more dramatic, the higher the
level of volatility that occurs and vice versa. “A rising VIX
indicates that traders expect the S&P 500 Index to become more
volatile. The higher the VIX, the higher the fear, which,
according to market contrarians, is considered a buy signal”
(COE Market Volatility Index (VIX)). To be able to measure
volatility, it can be done by two methods. The first one is based
upon performing statistical calculations over a specific time
period on the historical prices. The second method involves
inferring (deduce or conclude) the value as implied by the
option prices.
This method after research seems to be a benefit for
those looking to making an investment in a stock. It helps them
make a sound decision by doing their part on researching.
Proverbs 3:13 NIV, “Blessed are those who find wisdom, those
who gain understanding.”
References:
Kuepper, J. (2020, March 13). CBOE Volatility Index (VIX)
Definition. https://www.investopedia.com/terms/v/vix.asp.
What Is VIX? - CBOE Market Volatility Index. Fidelity.
https://www.fidelity.com/learning-center/trading-
investing/technical-analysis/technical-indicator-guide/cboe-vix.
Bottom of Form
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