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Walk me through how you calculate WACC.
Answer
WACC = (E/V) × Re + (D/V) × Rd × (1 − t), where E = equity value, D = debt value, V = E + D, Re = cost of equity, Rd = cost of debt, and t = tax rate. Cost of equity is calculated via CAPM: Re = Rf + β × (Rm − Rf).
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WACCcost of capital