WACC vs IRR

⏱️TIMESTAMPS⏱️
0:00 Introduction
0:22 WACC and IRR definitions
0:56 WACC in NPV calculations
1:29 IRR in NPV calculations
1:46 NPV formula
2:05 WACC in NPV formula
2:22 IRR in NPV formula
2:43 NPV IRR WACC example
4:33 How to calculate IRR

The Weighted Average Cost of Capital is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. The riskier or more uncertain the company and the riskier or more uncertain the project, the higher the WACC. Internal Rate of Return is the discount rate at which the net present value of all cash flows from a particular project is equal to 0.

Here are the steps to use in the NPV formula when you use Weighted Average Cost of Capital. Step 1: start with the nominal cash flows. Step 2: apply the WACC as an input variable. Step 3: Calculate NPV.

Here are the steps to use in the NPV formula when you use Internal Rate of Return. Step 1: start with the nominal cash flows. Step 2: set NPV to zero. Step 3: Calculate IRR as the output variable.

Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and #accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!

[TheJellyPlane]

Gosh you and your channel are a godsend. I think I've said this twice. I'm trying to learn with books but your explanations are way better! Much thanks!

[dmdmdmdmdmdmdmdmdm]

The simpliest explanation ever!!!! Thank you...

[pavelivanov]

One of the best explanations! Thank you so much!

[horodetskaanna]

Thank you for explaining it, its very useful for my PMP study

[andrewellicott]

Wow thank you so much for the easy explanation. I was confused for a while which was frustrating me but this video helped me understand it.

[jonahbollinger]

This is the video I needed to help everything click. Thank you.

[emammadov]

very simple and easy to understand explanation. Thanks!

[nicolassuarezblog]

thanks for the information, very well explained, great!

[samaysoni]

Bless you, kind sir. You are a good man.

[belindamercya]

Thanks for the informative video. I understand the numerical explanation behind IRR and WAC. However, what is the relevance of IRR?

[simlowsb]

Hello. Thanks for the video. Is WACC also known as the discount rate?

[jackthebeanstalkdelohio]

To find the cost of debt through wacc, will I have to calculate corporate's tax?

[nategabig]

Very well done, thank-you...any idea why Excel says NPV is $30, when I use the embedded function "NPV" and the exact same #'s?

[alfonsolopc]

why does NPV after Year 1 decrease over time? From 333 to 193 USD for example

[Jan-sdnc]

Thanks for the Video. Can I actually compare my project irr from my entity free CF (which doesnt take into account a tax shield) and my WACC (which takes it into account)? I want to find out weather my new founded project has the ability to cover the total cost of capital.

[timothybracken]

do you have to take into account wacc first when determining discount rate ?

[kennethmallari]

what happens if wacc is higher than irr, but npv is a positive number. should the business still be pursued?

[federicocarbonari]

How the hell do I calculate the IRR, how do i come to the solution of 22% ?, Thx for the video ;)