Posts Tagged ‘valuation’

The WACC is the average cost of raising capital from all sources, including equity, common shares, preferred shares, and debt. It represents the required return firms should earn to satisfy their investors.

The present value is the current value of future cash flows at a specific rate of return. The present value indicates that an amount of money today has a higher value than that same amount in the future.

To compensate for the risks that shareholders take, firms pay them in return. The theoretical return the firm pays its shareholders is known as the cost of equity. In other words, the cost of equity is the rate of returns a firm pays to its shareholders.

Inflation is when the prices of goods and services increase over time. While the prices of goods and services increase, the purchasing power or value of money decreases.

Future value is the value of a current asset at a specific time in the future calculated based on an assumed growth rate.