# cost_of_capital

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Weighted Average Cost Of Capital - WACC
What Does Weighted Average Cost Of Capital - WACC Mean?
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
Investopedia explains Weighted Average Cost Of Capital - WACC...
Broadly speaking, a company’s assets are financed by either debt or equity. WACC is the average
of the costs of these sources of financing, each of which is weighted by its respective use in the
given situation. By taking a weighted average, we can see how much interest the company has
to pay for every dollar it finances.
A firm's WACC is the overall required return on the firm as a whole and, as such, it is often used
internally by company directors to determine the economic feasibility of expansionary
opportunities and mergers. It is the appropriate discount rate to use for cash flows with risk that
is similar to that of the overall firm.

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﻿Weighted Average Cost Of Capital - WACC What Does Weighted Average Cost Of Capital - WACC Mean? 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 ...
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