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Weighted average cost of capital (WACC) is the average after-tax cost of
a company’s various capital sources, including common stock, preferred
stock, bonds and any other long-term debt.
WACC is calculated by multiplying the cost of each capital source (debt
and equity) by its relevant weight, and then adding the products
together to determine the WACC value:
WACC = E/V*Re+D/V*Rd*(1-Tc)
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
I hope this helps. Time that is allocated to handle the question is not enough, I request you add me more time so that I finish it up, though am having some hitches with my notebook. Thanks for your patience
Please let me know if you need any clarification. I'm always happy to answer your questions.
Jun 7th, 2015
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