From octave-sources-request at bevo dot che dot wisc dot edu Mon Jan 27 14:07:04 2003
Subject: finance/wacc.m
From: Stefan Burger <s dot burger at debitel dot net>
To: octave-sources at bevo dot che dot wisc dot edu
Date: Mon, 27 Jan 2003 06:56:04 -0600


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Calculate the weighted adjusted cost of capital.=20
Best regards,=20

Stefan Burger
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## Copyright (C) 2003 Stefan Burger
##
## This file is part of Octave.
##
## Octave is free software; you can redistribute it and/or modify it
## under the terms of the GNU General Public License as published by the
## Free Software Foundation; either version 2, or (at your option) any
## later version.
##
## Octave is distributed in the hope that it will be useful, but WITHOUT
## ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or
## FITNESS FOR A PARTICULAR PURPOSE.  See the GNU General Public License
## for more details.
##
## You should have received a copy of the GNU General Public License
## along with Octave; see the file COPYING.  If not, write to the Free
## Software Foundation, 59 Temple Place, Suite 330, Boston, MA 02111 USA.

## -*- texinfo -*-
##  at deftypefn {Function File} {} wacc (@var{r_debt}, @var{r_equity}, @var{equity_ratio}, @var[s])
## Calculate the weighted average cost of capital, WACC.
## Inputs:
##       at var{r_debt} :      cost of debt (interest rate),
##       at var{r_equity} :    (levered) cost of equity (interest rate),
##       at var{equity_ratio} : ratio of equity capital to total capital,
##       at var{s} : marginal tax rate.
##
## Note: all values are entered as fractions, e.g., 0.12 for an interest rate of 12%.
## Note: Accounting requires that total capital equals sum of debt and 
## equity capital. Therefore, debt ratio and equity ratio have to sum up to 1.0 (100%).
##  at end deftypefn
##  at seealso{capm}

## Author: Stefan Burger <Stefan dot Burger at stud dot tu-muenchen dot de>
## Description: WACC weighted average cost of capital.

function WACC = wacc (r_debt, r_equity, equity_ratio, s)

  if (nargin != 4)
    usage("wacc (r_debt, debt_ratio, r_equity, equity_ratio, s)");
  endif

  if (! (isscalar (equity_ratio)))
    error ("wacc: equity_ratio must be a scalar");
  endif

  if (! (isscalar (s)))
    error ("wacc: debt_ratio must be a scalar");
  endif

  debt_ratio = 1 - equity_ratio;

  WACC = r_debt*(1-s)*debt_ratio+r_equity*equity_ratio;

endfunction

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