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Cost of debt, cost of equity, and weighted average cost

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Could someone help to explain how cost of debt, cost of equity, and weighted average cost of capital are determined?

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The solution defines debt and explains how cost of debt, cost of equity, and weighted average cost of capital are determined. Formulas and references for future study are provided.

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Cost of debt, cost of equity, and weighted average cost of capital

Debt is defined as an amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.

Bonds, loans and commercial paper are all examples of debt. For example, a company may look to borrow $1 million so they can buy a certain piece of equipment. In this case, the debt of $1 ...

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