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23 September, 04:31

If this firm's WACC is 6.6% and the average firm in its industry has an ROA of 8%, is this firm earning above or below normal economic performance and above or below average accounting performance?

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  1. 23 September, 04:52
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    From this information we cannot determine whether the firm is earning above or below economic performance or accounting performance because WACC and ROA are two completely different measures. ROA is calculated by dividing net income by assets in order to find the return on assets, where as WACC is the weighted average cost of capital and is calculated by multiplying the cost of each source of capital for eg debt, equity and multiplying it by the weightage of that source of capital, therefore we cannot judge by looking at one firm's wacc and compare it with the industry ROA
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