Cost of Capital Simulation

• Analyze current capital structure and financial strategy

• Estimate cost of equity using market data, risk-free rate, and beta

• Calculate cost of debt based on ratings, covenants, and debt maturity

• Determine WACC using appropriate weighting and tax considerations

• Evaluate potential projects, acquisitions, or funding approaches

• Defend cost of capital assumptions to boards or investors

• Adjust assumptions in response to changing economic data

• Monitor how WACC changes with business or capital structure shifts

Each decision round builds on previous outcomes, encouraging continuous iteration and improvement.

By the end of the simulation, participants will be confident in:

• Accurately calculating the cost of equity, debt, and WACC

• Understanding how capital structure affects firm valuation

• Making investment decisions using discount rates tied to real-world data

• Communicating finance concepts clearly to non-technical stakeholders

• Applying WACC to NPV, DCF, and capital budgeting decisions

• Evaluating the effects of risk, interest rates, and taxes on financing

• Using cost of capital insights in M&A, fundraising, and corporate strategy

• Justifying assumptions and navigating ambiguity in decision-making

The simulation’s flexible structure ensures that these objectives can be calibrated to match the depth, duration, and focus areas of each program, whether in higher education or corporate learning.

1. Receive a Case Brief Participants begin with a business context: a company considering a capital project, funding plan, or acquisition.

2. Analyze Financial Structure They assess the current capital structure, recent financing decisions, and market conditions.

3. Estimate Cost of Capital Using guided steps or provided data, they estimate the cost of equity and debt and calculate WACC.

4. Make Capital Allocation Decisions They apply WACC to project evaluations and determine whether to proceed with investments or change funding strategy.

5. Defend and Communicate Participants justify their assumptions and decisions to stakeholders - simulated boards, investors, or finance committees.

6. Adapt and Iterate As the market or internal strategy shifts, participants adjust their calculations and recommendations in future rounds.

• Do participants need prior finance experience? A basic understanding of financial statements helps, but the simulation is guided and can be adjusted for beginner to advanced levels.

• Does the simulation teach CAPM and beta? Yes. Participants estimate beta, equity risk premiums, and risk-free rates to calculate the cost of equity.

• Can this be used in valuation courses? Absolutely. WACC plays a key role in DCF modeling, investment appraisal, and M&A.

• Is it suitable for corporate training? Yes. It’s ideal for upskilling finance teams, analysts, and strategy professionals.

• How long is the simulation? It can run in 3 - 4 hours or be stretched across multiple sessions with deeper analysis and reflection.

• Can the scenarios be customized by industry? Yes. Case briefs can reflect sectors like tech, manufacturing, retail, or financial services.

• Are group decisions part of the simulation? Yes. Teams can collaborate on assumptions, debate discount rates, and present as a finance committee.

• How is feedback delivered? Participants receive performance metrics, variance from optimal WACC, and stakeholder response feedback.

• Does it simulate capital structure changes? Yes. Participants can model different mixes of debt and equity to see how WACC shifts.

• Is this a prerequisite for other simulations? It pairs well with M&A, valuation, or corporate strategy simulations - but stands alone effectively too.

• Accuracy and defensibility of WACC calculations

• Strategic thinking in capital allocation decisions

• Communication clarity in presenting assumptions

• Responsiveness to new data or interest rate shifts

• Understanding of risk-return trade-offs

• Team collaboration and stakeholder engagement

You can also include memo writing and debrief presentations as part of the assessment structure. Additionally, you can also add a built-in peer and self-assessment tool to see how participants rate themselves. This flexibility allows the simulation to be easily integrated by professors as graded courses at universities and by HR at assessment centres at companies.