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WACC = (E/D x Ke) + ((D/E x Kd) x (1 – T))

E = equity value

D = debt value

Ke = cost of equity

Kd = cost of debt

T = tax rate

Ke = Rf + B * ERP

Rf = risk free rate

B = beta of company

ERP = equity risk premium

Kd = Rf + credit spread

In theory, if a project's ROIC is less than WACC, it does not generate economic value.



How does this apply given that we're assuming Google has enough cash on hand from profit of other aspects of their business that they do not finance most projects through new loans (debt) from banks at current interest rates because they don't need to?


Their cash balance doesn't really matter, it impacts their cost of capital in various ways, but you can still compare the ROIC of any given project to the overall company's cost of capital.


Their cash balance can also make higher risk-free returns otherwise


and charlie munger said he never used calculus


That’s all algebra :)




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