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

Author

Listed:
  • Zbysław Dobrowolski

    (Institute of Public Affairs, Jagiellonian University, 30-348 Kraków, Poland)

  • Grzegorz Drozdowski

    (Department of Economics and Finance, Jan Kochanowski University in Kielce, 25-369 Kielce, Poland)

  • Mirela Panait

    (Department of Cybernetics, Economic Informatics, Finance and Accounting, Petroleum-Gas University of Ploiesti, 100680 Ploiesti, Romania
    Institute of National Economy, 050771 Bucharest, Romania)

  • Simona Andreea Apostu

    (Department of Statistics and Econometrics, Bucharest University of Economic Studies, 010552 Bucharest, Romania
    Institute of National Economy, 050771 Bucharest, Romania)

Abstract

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.

Suggested Citation

  • Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Simona Andreea Apostu, 2022. "The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector," Energies, MDPI, vol. 15(18), pages 1-15, September.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:18:p:6655-:d:912663
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