How do we compute the weighted average cost of capital of a firm?

Expert Solution

Weighted Average Cost of capital is the process of determining the cost of various sources from which the capital is obtained by the company in the proportion of the total capital raised. In this way we can know the cost of each source individually from the total capital.

Weighted Average Cost of capital is calculated as follows:

= Weighted After tax cost of Equity + Weighted After tax cost of Preferred Stock + Weighted After tax cost of Debt

For your referene we can take an example as below:

From the above information, we can calculate the WACC as follows:

Formulas used in the excel sheet are:

jeff jeffy answered 2 years ago

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