Purchase Solution

# WACC (weighted average cost of capital)

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Explain the weighted average cost of capital, with debt, equity and marginal cost of capital.

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WACC is defined and illustrated.

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WACC

WACC (weighted average cost of capital) is the cost of financing the company's operations and represents the average cost of debt and equity funding (eg stocks, bonds and other debt)
weighted by the proportion of the company's capital structure that those two components constitute. It is used as a hurdle rate for capital investment.

WACC is calculated by multiplying the cost of each capital component by its proportional weighting and then summing:

WACC= (E/V) x Re + (D/V) x Rd x (1-Tc)

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• BSc, Dokuz Eylul University
• MBA, Texas A&M University-Kingsville
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