Weighted Average Cost of Capital.
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Capital is one of the most important resources for business firms. It is important for managers to be aware of their cost of capital. To determine cost of capital, an important concept is weighted average cost of capital.
Define Weighted Average Cost of Capital (WACC).
How WACC is calculated ?
Take an example of a large and popular public company and calculate its WACC.
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Solution Summary
This solution provides a definition of what weighted average cost of capital (WACC) is and also provides an example of how it can be calculated.
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Weighted Average Cost of Capital (WACC)
In general, WACC can be defined as the average cost for a firm, which it has to pay for using different financial resources. In other words, payment to security holders by the firm for financing of its assets can be determined as the WACC (Pratt & Grabowski, 2010). It is the proportional cost of each financial resource used by the firms as per their weight in the capital structure.
Calculation of WACC
WACC = E/V * Re + D/V * Rd * (1-Tc)
Here,
E = Total value of Equity
D = ...
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