Determine what discount rate (WACC) Vestor should use to evaluate the warehousing facility project. 

Vestor’s discount rate for evaluating the warehouse facility project, is called the “Weighted Average Cost of Capital” (WACC). The WACC is calculated after taking into consideration the costs of capital from all funding sources used by an organization, including debt, equity, and others. WACC formula is as follows:

WACC = (E/V * Re) + ((D/V * Rd) * (1-T))

Where E = market value of equity; V = total market value of firm’s capital structure (equity + debt); Re = required rate of return on equity; D = market value of debt; Rd= required rate of return on debt; T= effective corporate income tax rate.

In order to determine Vestor’s WACC, they must first calculate each component separately. They can, for example calculate the expected return on equity by using their dividend yield and anticipated dividend growth or stock price. Cost of debt estimates can be calculated based on previous borrowings and industry averages. Vestor then inputs these elements into the formula and calculates their WACC. They will receive a discount rate that is appropriate to use to evaluate their projects.