Weighted Average Cost of Capital Formula

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The weighted average cost of capital (WACC) is the minimum return that a company is supposed to give on an average to satisfy its entire security proprietors to finance its assets. Check FAQs
WACC=((EVFirm)Re)+(((MVVFirm)Rd)(1-Tc))
WACC - Weighted average cost of capital?E - Market value of the firm’s equity?VFirm - Firm Value?Re - Cost of Equity?MV - Market Value of the Firm’s Debt?Rd - Cost of Debt?Tc - Corporate Tax Rate?

Weighted Average Cost of Capital Example

With values
With units
Only example

Here is how the Weighted Average Cost of Capital equation looks like with Values.

Here is how the Weighted Average Cost of Capital equation looks like with Units.

Here is how the Weighted Average Cost of Capital equation looks like.

-160Edit=((500Edit500000Edit)200000Edit)+(((2000Edit500000Edit)10000Edit)(1-10Edit))
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Weighted Average Cost of Capital Solution

Follow our step by step solution on how to calculate Weighted Average Cost of Capital?

FIRST Step Consider the formula
WACC=((EVFirm)Re)+(((MVVFirm)Rd)(1-Tc))
Next Step Substitute values of Variables
WACC=((500500000)200000)+(((2000500000)10000)(1-10))
Next Step Prepare to Evaluate
WACC=((500500000)200000)+(((2000500000)10000)(1-10))
LAST Step Evaluate
WACC=-160

Weighted Average Cost of Capital Formula Elements

Variables
Weighted average cost of capital
The weighted average cost of capital (WACC) is the minimum return that a company is supposed to give on an average to satisfy its entire security proprietors to finance its assets.
Symbol: WACC
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.
Market value of the firm’s equity
The market value of equity is the total dollar market value of all of a company's outstanding shares.
Symbol: E
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.
Firm Value
Firm Value is a measure of a company's total value, often used as a more comprehensive alternative to equity market capitalization.
Symbol: VFirm
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.
Cost of Equity
The cost of equity is the return a firm theoretically pays to its equity investors, i.e., shareholders, to compensate for the risk they undertake by investing their capital.
Symbol: Re
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.
Market Value of the Firm’s Debt
The Market Value of the Firm’s Debt is the total dollar debt value of all of a firm such as bonds and loans.
Symbol: MV
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.
Cost of Debt
The cost of debt is the interest a company pays on its borrowings.
Symbol: Rd
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.
Corporate Tax Rate
The corporate tax rate is the rate at which levy is placed on the profit of a firm to raise taxes.
Symbol: Tc
Measurement: NAUnit: Unitless
Note: Value can be positive or negative.

Other formulas in Important Formulas of Business category

​Go Break-Even Point
BEP=FCCM
​Go Return on Capital Employed
ROCE=(EBITTA-CL)100

How to Evaluate Weighted Average Cost of Capital?

Weighted Average Cost of Capital evaluator uses Weighted average cost of capital = ((Market value of the firm’s equity/Firm Value)*Cost of Equity)+(((Market Value of the Firm’s Debt/Firm Value)*Cost of Debt)*(1-Corporate Tax Rate)) to evaluate the Weighted average cost of capital, The Weighted Average Cost of Capital (WACC) is the minimum return that a company is supposed to give on average to satisfy its entire security proprietors to finance its assets. Weighted average cost of capital is denoted by WACC symbol.

How to evaluate Weighted Average Cost of Capital using this online evaluator? To use this online evaluator for Weighted Average Cost of Capital, enter Market value of the firm’s equity (E), Firm Value (VFirm), Cost of Equity (Re), Market Value of the Firm’s Debt (MV), Cost of Debt (Rd) & Corporate Tax Rate (Tc) and hit the calculate button.

FAQs on Weighted Average Cost of Capital

What is the formula to find Weighted Average Cost of Capital?
The formula of Weighted Average Cost of Capital is expressed as Weighted average cost of capital = ((Market value of the firm’s equity/Firm Value)*Cost of Equity)+(((Market Value of the Firm’s Debt/Firm Value)*Cost of Debt)*(1-Corporate Tax Rate)). Here is an example- -160 = ((500/500000)*200000)+(((2000/500000)*10000)*(1-10)).
How to calculate Weighted Average Cost of Capital?
With Market value of the firm’s equity (E), Firm Value (VFirm), Cost of Equity (Re), Market Value of the Firm’s Debt (MV), Cost of Debt (Rd) & Corporate Tax Rate (Tc) we can find Weighted Average Cost of Capital using the formula - Weighted average cost of capital = ((Market value of the firm’s equity/Firm Value)*Cost of Equity)+(((Market Value of the Firm’s Debt/Firm Value)*Cost of Debt)*(1-Corporate Tax Rate)).
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