Weighted Average Cost of Capital
Weighted Average Cost of Capital
This is calculated by the following equation:
WACC = (Market value of equity) / (market value of equity / market value of debt) * Cost of Equity + (market value of debt) / (market value of equity / market value of debt) * cost of debt * (1 - coporate tax rate)
What does this mean? It bascially shows a companies cost of their capital, but weights every category of capital (including stock, bond, and any other debt) based on their amounts.
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