The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector

Recent economic anomalies, including the unprecedented lockdown generated by the COVID-19 crisis, have demonstrated that the weighted average cost of capital (WACC) remains an actual topic in the financial literature and in practice. Companies operate in an increasingly volatile environment, due to...

Full description

Saved in:
Bibliographic Details
Published in:Energies (Basel) 2022-09, Vol.15 (18), p.6655
Main Authors: Dobrowolski, Zbysław, Drozdowski, Grzegorz, Panait, Mirela, Apostu, Simona Andreea
Format: Article
Language:English
Subjects:
Anomalies
Bankruptcy
Capital costs
Capital structure
Corporate profits
Cost control
cost of debt
COVID-19
Decision making
Economics
energy company
Energy industry
Equity financing
Financial institutions
Financial leverage
Impact analysis
Insolvency
interest rate
Investment policy
Investments
Profitability
return on equity
Stockholders
tax shield
WACC
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Recent economic anomalies, including the unprecedented lockdown generated by the COVID-19 crisis, have demonstrated that the weighted average cost of capital (WACC) remains an actual topic in the financial literature and in practice. Companies operate in an increasingly volatile environment, due to twin transitions and interlinked crises, and so they must have specific tools for measuring risk and profitability, in order to enable them to have a sound financial policy. Based on the earlier results obtained by Modigliani and Miller (1963), Harris and Pringle (1985), and Farber, Gillet, and Szafarz (2006), this study shows the relationship between WACC and interest rate. It offers a modified WACC formula that considers unstable market circumstances. The new redefined WACC can be a valuable tool in business planning for companies from different fields. The companies in the energy sector are very interested in the topic of WACC, considering not only the complex nature of the investments made and the long-term nature of investment recovery but also the multiple risks that have an impact on their activity and that can be found in different economic, social, and geopolitical spheres.
ISSN:1996-1073
1996-1073
DOI:10.3390/en15186655