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Weighted Average Cost Of Capital - WACC A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation.
WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing:
Where Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate Weighted Average Cost Of Capital - WACC A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources - common stock, preferred stock, bonds and any other long-term debt - are included in a WACC calculation.
WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing:
WACC= E/V * Re + D/V* Rd*(1-Tc)
Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
What else can I help you with?
What are the various bases for determining the proportions to be employed in calculating the weighted average cost of capital?
i have to study
The cost of capital should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets?
Yes, the cost of capital is a weighted average of the various sources of long-term funds a firm uses, such as equity and debt. By considering the different costs and proportions of each source, the cost of capital provides a comprehensive measure of the overall cost of financing for the firm's assets.
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