Can you please explain a bit more why an increase in WACC leads to a decrease in present value?

Hi there. Rising rates and ultimately rising borrowing costs (WACC) make future earnings worth less.

The present value of a future cash flow is simply all the future cash generated by that company over that time period, discounted back to the current day. And, although there is more than one discount rate you can use (like required rate of return for example) lots use WACC. If the weighted average cost of capital goes up, it costs more to borrow, reducing the value of future cash flow. Which in the end would give you a lower share value that you SHOULD be paying in the present day. A higher WACC is a signal of higher risk, as higher borrowing costs are always a riskier proposition.

I guess if I were to sum it up in a single sentence: cash flows are worth less in the future when it costs more to obtain those cash flows.