Question

In: Finance

What does the “weight” refer to in the weighted average cost of capital?

What does the “weight” refer to in the weighted average cost of capital?

Solutions

Expert Solution

Weight refers to the PROPORTION OF DIFFERENT TYPES OF CAPITAL IN THE OVERALL CAPITAL OF THE COMPANY.

Weights will mean that how much equity capital or debt capital or preference share capital are in total capital of the company, so it will be the percentage of different type of capital in the overall capital structure of the company.

For example, if the equity capital is 50 and the overall capital of the company is 100, then the weight of equity will be 50%.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

What is Weighted Average Cost of Capital?
What is Weighted Average Cost of Capital?
What does a company’s weighted average cost of capital (WACC) represent?
What does a company’s weighted average cost of capital (WACC) represent?
What is Weighted Average Cost of Capital (WACC)?
Charlotte's Crochet Shoppe has 14,300 shares of common stock outstanding at a price per share of $75 and a rate of return of 11.61%. The company also has 280 bonds outstanding, with a par value of $2000 per bond. The pre-tax cost of debt is 6.13% and the bonds sell for 97.2% of the par. What is the weighted average cost of capital (WACC), if the tax rate is 40%?
The weighted average cost of capital is determined by _____ the weighted average cost of equity....
The weighted average cost of capital is determined by _____ the weighted average cost of equity. a. multiplying the weighted average aftertax cost of debt by b. adding the weighted average pretax cost of debt to c. adding the weighted average aftertax cost of debt to d. dividing the weighted average pretax cost of debt by e. dividing the weighted average aftertax cost of debt by
The weighted average cost of capital (WACC) is calculated as the weighted average of cost of...
The weighted average cost of capital (WACC) is calculated as the weighted average of cost of component capital, including debt, preferred stock and common equity. In general, debt is less expensive than equity because it is less risky to the investors. Some managers may intend to increase the usage of debt, therefore increase the weight on debt (Wd). Do you think by increasing the weight on debt (Wd) will reduce the WACC infinitely? What are the benefits and costs of...
Does the Weighted Average Cost of Capital (WACC) account for demand?
Does the Weighted Average Cost of Capital (WACC) account for demand?
refer to the following information and provide the weighted average cost of capital (WACC). Category Rate...
refer to the following information and provide the weighted average cost of capital (WACC). Category Rate (%) Amount ($) Annual Cost Current Liabilities, Except Bank Debt 0%               650,000 Notes Payable to Banks, Short-Term 12%               230,000 Long-Term Debt 8%               245,000                  18,000 Lease Contracts 14%               205,000 Loans from Shareholders 8%            1,200,000 Stockholders' Equity            1,875,000                  12,000 Totals
1) what is the cost of capital ? 2) what is the weighted average cost of...
1) what is the cost of capital ? 2) what is the weighted average cost of capital ? 3) what is cost of a) cost of debt? b) cost preferred stock ? c) cost of common stock ?
Discus the three pairs of elements of the weighted average cost of capital formula. What does...
Discus the three pairs of elements of the weighted average cost of capital formula. What does the WACC denote? (For example, what does the WACC = 9.7% suggest to the analyst?) Which WACC element, if any, is calculated “after tax”? Why? What does this suggest about using this asset class, courtesy of the US government?
Discus the three pairs of elements of the weighted average cost of capital formula. What does...
Discus the three pairs of elements of the weighted average cost of capital formula. What does the WACC denote? (For example, what does the WACC = 9.7% suggest to the analyst?) Which WACC element, if any, is calculated “after tax”? Why? What does this suggest about using this asset class, courtesy of the US government?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT