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Weighted Average Cost of Capital is calculated by weighing the Cost of Capital and Cost of equity in a Capital Structure of a Company
W.A.C.C : is a firm's cost of :
1- cost of debt Financing .( Cheapest Because Of Tax Deductability ).
2- Cost of Preferred Stocks .
3- Cost Of Equity ( Common Stocks & Retained Earnings ) .
averaging them according to the market value of each sources.
Your cost of capital is your cost of equity plus cost of debt. The weight is based on how much of each is you capital made of.60% debt Vs40% equity.
Joe
Wacc = 《(market value of equity X cost of equity in % + market value of debt) X (after tax cost of debt financing in %)》 / market value of equity + market value of debt.
Dont have to explaim this as very good explanation is given by the guys above
The weighted average cost of capital (WACC) is being calculated by weighing each category of capital on the basis of their proportion available in the capital structure.
The debts, common stock, preferred stock, and bonds are the different categories of capital structure.
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