Weighted average cost of capital (WACC) is the calculation of a company’s cost of capital whereby every source of capital is proportionately weighted.

1. Weighted Average Cost Of
Capital
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2. What is Weighted Average Cost Of
Capital?
Weighted average cost of capital (WACC)
is the calculation of a company’s cost of
capital whereby every source of capital is
proportionately weighted.
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Basic Formula
WACC = ((E/V) * Re) + [((D/V) * Rd)*(1-T)]
Where
E = Market value of the company’s equity
D = Market value of the company’s debt
V = The company’s total market value (E + D)
Re = Cost of equity
Rd = Cost of debt
T= Tax rate

4. Uses of Weighted Average Cost Of
Capital
 It may be used for discounting cash flows in determination of
net present value for investment analysis.
 Some firms use WACC to check if the investment projects
that are available are worthwhile to take on.
 Securities analysts use WACC when assessing and choosing
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investments.
 Weighted average cost of capital also helps determine the
feasibility of expansion as well as mergers.

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Weighted Average Cost of Capital,
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