When calculating the WACC, it is standard practice to subtract __________ to compute the net debt outstanding.

The cost equity.

Because...
Cost debt+ cost equity= WACC

When calculating the Weighted Average Cost of Capital (WACC), it is standard practice to subtract the Cash and Cash Equivalents from the Total Debt to compute the net debt outstanding.

To calculate the WACC, you'll need to follow these steps:

1. Determine the company's market value of equity (E) by multiplying the number of outstanding shares by the current market price per share.

2. Determine the market value of debt (D), which includes both long-term and short-term debt.

3. Subtract the Cash and Cash Equivalents from the Total Debt to get the net debt outstanding. Cash is deducted because it is already accounted for in the company's market value of equity.

4. Determine the company's cost of equity (Ke), which represents the return required by shareholders. This can be calculated using the Capital Asset Pricing Model (CAPM) or other methods.

5. Determine the company's cost of debt (Kd), which represents the interest rate on the company's debt. This can be estimated using the yield-to-maturity on the company's bonds or other methods.

6. Determine the company's tax rate (T), which represents the corporate income tax rate.

7. Calculate the weighted average cost of capital (WACC) using the following formula:

WACC = (E / V) * Ke + (D / V) * Kd * (1 - T)

where:
- E is the market value of equity
- V is the total market value of the company (E + D)
- Ke is the cost of equity
- D is the net debt outstanding
- Kd is the cost of debt
- T is the tax rate

By subtracting Cash and Cash Equivalents from the Total Debt, you ensure that only the net debt outstanding is considered in the WACC calculation. This adjustment accounts for the fact that Cash and Cash Equivalents have already been considered in the market value of equity.