What is the formula for calculating wacc?

Answer 1

The Weighted Average Cost of Capital (WACC) reflects the average 'cost of financing' for a firm. Firms raise money in several ways, such as issuing equity, debt, and preferred stock. The WACC is calculated by taking the (after-tax) 'cost' of each of these forms of financing and multiplying it by the relative proportion of total financing represented by that form of financing.

The full formula for WACC is:

where

rD = The required return of the firm's Debt financing

(1-Tc) = The Tax adjustment for interest expense

(D/V) = (Debt/Total Value)

rE= the firm's cost of equity

(E/V) = (Equity/Total Value)

V = (D + E), ie Total Firm Value

To calculate the WACC for a publicly traded company, there is an online WACC Calculator available at http:/www.ThatsWACC.com