WACC can simply be used as a discount rate which presumes risk of a particular
or specific is equal to the overall risk of the firm’s business environment. A
percentage premium should be added to WACC recognize an apt discounting rate
if the project has higher risk than the norm.
a a WACC assumes the capital structure in place is ideal, which may not be
achievable in real world.
a a WACC is based on market values of capital that keep on changing thus
WACC will transform over time. However, it is assumed to remain constant
during the economic life of the project. In fact, market value can change rom
minute to minute in the real world.
a a It is based on historical data and statistics, especially whenever determining
the cost of each component as like in determining the cost of equity (Ke) the past
year's DPS is used whereas from the past stream of dividends the growth rate is
estimated. So, it looks like we are “mixing apples and oranges”.
http://www.expertsmind.com/questions/weaknesses-of-wacc-as-discounting-rate-
30130855.aspx
Warm regards, Dr. Gary
