The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence 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 practice. Companies operate in an increasingly volatile environment due to twin transitions and interlinked crises. So they must have specific tools for measuring risk and profitability 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.
