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Cost of Capital Simulation

In this hands-on Cost of Capital Simulation, participants are corporate finance professionals tasked with calculating and applying the WACC to guide investment and financing decisions under real-world constraints.

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Cost of Capital Simulation Overview


The Cost of Capital Simulation puts participants in the role of financial decision-makers at a mid-sized company evaluating strategic investments. They must estimate the firm’s cost of equity and debt, calculate WACC, and use it to assess the viability of capital projects, M&A targets, or funding strategies.

Across multiple simulation rounds, participants respond to changing market conditions, shifting interest rates, capital structure adjustments, and investor expectations. They must balance risk and return, optimize capital structure, and justify their recommendations to internal and external stakeholders.

Developed with input from corporate finance practitioners and professors, the simulation blends technical finance concepts with strategic judgment and stakeholder communication.
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Cost of Capital Simulation Concepts


This simulation covers foundational and advanced concepts in capital structure and valuation, including:
  • Cost of Equity: Using CAPM, beta estimation, and equity risk premiums

  • Cost of Debt: Considering credit spreads, default risk, and tax shields

  • Weighted Average Cost of Capital (WACC): Understanding capital mix, weights, and firm value impact

  • Capital Structure Optimization: Debt vs. equity trade-offs

  • Project Valuation: Applying WACC to investment appraisal, NPV, and IRR

  • Macroeconomic Impact: Interest rate shifts, inflation, and credit cycle influences

  • Investor Communication: Justifying assumptions and capital allocation decisions

  • Strategic Financing Choices: Debt issuance, buybacks, equity raises, and hybrid instruments

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Gameflow

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What Participants Do


Participants are placed in a scenario where they must guide a company’s major investment or financing decision. In the simulation, they:
  • 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.

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Learning Objectives


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 bridges technical knowledge with strategic decision-making - perfect for finance, accounting, and business strategy learners.

How the Cost of Capital Simulation Works


Ideal for classrooms or corporate training, the simulation can be run individually or in teams.

**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.

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Why This Cost of Capital Simulation Works


Cost of capital is a core concept that’s often reduced to formulas - but it’s deeply strategic in practice. This simulation gives students and professionals the experience of making high-impact decisions where WACC is a critical input.

It builds fluency in finance fundamentals and helps learners see how small changes in assumptions can change big decisions - ideal for investment analysis, valuation, and corporate finance education.
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Frequently Asked Questions


  • 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.

Assessment


Participants are assessed on:
  • 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

Instructors may include written memos, valuation spreadsheets, or pitch presentations as part of the assessment.

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Enquire

Webinar 28 Nov 2025 00:00

Join this 20-minute webinar, followed by a Q&A session, to immerse yourself in the simulation.

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Private Demo

Book a 15-minute Zoom demo with one of our experts to explore how the simulation can benefit you.