What sources of capital should be included when you estimate XYZ’s WACC?  Should the component costs be estimated on a before or after-tax basis? Why?

When estimating XYZ’s WACC (weighted average cost of capital), it is important to include all sources of funding that the company has access to – such as equity, debt and preferred shares. This is because each one these will have different associated costs which must be taken into account when calculating overall WACC.

The component costs should ideally be estimated on a after-tax basis as this provides more accurate representation actual cost needed in order finance activities. This due fact that taxes can significantly reduce amount available for investments thus making before-tax estimates less reliable when trying accurately determine how much money would need be invested given certain situation.

Moreover, by using after-tax numbers we also ensure that any tax related benefits (such as deductions or credits) are accounted for too which further helps provide more accurate results overall. Ultimately then, while both approaches have their place within financial analysis, utilizing post tax figures yields better results when attempting estimate XYZ’s WACC – thereby allowing company make more informed decisions moving forward.