Kohl’s in the Department Store Retail Chain for my discussion post.
The WACC of Kohls is 8.4%, the cost of equity is 12.65%, the cost of debt is 6.15% and
the tax rate is 25.65% ("ValueInvesting.io," n.d.).
Factors that affect WACC are:
• The cost of equity, cost of preferred stocks and cost of debt will be influenced by
the market interest rate (homework.study.com, n.d.).
• The Federal Reserve has an enormous influence over short-term interest rates and
WACC through the fed funds rate. An increase or decrease in the federal funds rate
affects a company's WACC because the risk-free rate is an essential factor in
calculating the cost of capital. The interest rate paid by the firm equals the risk-free
rate plus thedefault premium for the firm (Folger, 2022).
• The corporate tax rate would create the tax shield for the business, in terms of tax
savings on the current borrowings (homework.study.com, n.d.).
• The capital structure will have the impact on the weighted factor of each source of
fund. Thus, it will change the WACC (homework.study.com, n.d.).
• The response of WACC to economic conditions is more difficult to evaluate. The
direct effect of good economic conditions is to lower the risk of default, which
reduces the default premium and the WACC. However, that also makes it more
likely that the Fed will eventually raise interest rates and increase WACC (Folger,
2022).
References
Folger, J. (2022, August 15). Interest rates and other factors that affect WACC.
Investopedia. https://www.investopedia.com/ask/answers/070114/how-do-interest-
rates-affect-weighted-average-cost-capital-wacc-calculation.asp
(n.d.). homework.study.com. https://homework.study.com/explanation/a-discuss-the-
factors-that-affect-the-wacc-b-discuss-how-these-factors-may-differ-from-country-
to-country-answer-in-200-words.html
ValueInvesting.io. (n.d.). ValueInvesting.io | Automated DCF and WACC | Intrinsic
Value. https://valueinvesting.io/KSS/valuation/wacc
