ZuoTi.Pro
Question

In order to calculate the cost of capital of a company (WACC) which types(sources) of capital should we include?

business   accounting   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

WACC (weighted average cost of capital) It is rate at which company pay on average basis to all its security holders.It is weighted average of all sources of finance.

Types of capital included in WACC

  • Preferred stock capital
  • Common stock capital
  • Debt

WACC = WeKe+ WpKp+ WdKd(1-t)

We =weight of equity

Ke = Cost of equity

Wp =Weight of preferred stock

Kp = Cost of preferred stock

Wd = Weight of debt

Kd = cost of debt  

t = tax rate

0 0
Add a comment
Know the answer?
Add Answer to:
In order to calculate the cost of capital of a company (WACC) which types(sources) of capital...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • Discuss the types of sources a company can use to raise capital. Do these different sources...

    Discuss the types of sources a company can use to raise capital. Do these different sources of capital have different costs? Why or why not?

  • Your task is to find the cost of capital (WACC) for a company. The company has...

    Your task is to find the cost of capital (WACC) for a company. The company has three sources of capital available. The marginal tax rate for the company is 35% Debt: 2000 discount bonds with $1000 par value, with 4 years to maturity. Bonds currently offer 5% yield to bondholders. Preferred stock:14 000 shares outstanding with $90 market price and 5% yield. Common stock:100 000 shares outstanding with the book value of $20 but currently trading at P/B= 2.0. One...

  • Your task is to find the cost of capital (WACC)  for a company . The company has...

    Your task is to find the cost of capital (WACC)  for a company . The company has two sources of capital available. The marginal tax rate for the company is 35%. Debt 1 : 400 discount (e.g zero coupon) bonds with 10 000$ par value and 5 years to maturity. Bonds currently offer 5% yield to bondholders. Debt 2: The company has also recently obtained financing from the bank. The current loan balance is 4 000 000$ and the annual interest...

  • WACC—Market value weights The market values and after-tax costs of various sources of capital used by...

    WACC—Market value weights The market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table: : . a. Calculate the firm's weighted average cost of capital. b. Explain how the firm can use this cost in the investment decision-making process. 1 Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Source of capital Long-term debt...

  • Question 7 (Mandatory) (1 point) When firms use multiple sources of capital, they need to calculate...

    Question 7 (Mandatory) (1 point) When firms use multiple sources of capital, they need to calculate the appropriate discount rate for valuing their firm's cash flows as: O a weighted average of the capital components costs. O they apply to each asset as they are purchased with their respective forms of debt or equity. O a sum of the capital components costs. O a simple average of the capital components costs. Question 8 (Mandatory) (1 point) Which of the following...

  • WACC—Market value weights The market values and after-tax costs of various sources of capital used by...

    WACC—Market value weights The market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table: a. Calculate the firm's weighted average cost of capital. b. Explain how the firm can use this cost in the investment decision-making process. a. The firm's weighted average cost of capital, rg, using market value weights is %. (Round to two decimal places.) A Data Table in order to copy the contents of the data table...

  • WACC—Market value weights The market values and after-tax costs of various sources of capital used by...

    WACC—Market value weights The market values and after-tax costs of various sources of capital used by Ridge Tool are shown in the following table: a. Calculate the firm's weighted average cost of capital. b. Explain how the firm can use this cost in the investment decision-making process. A Data Table - X Round to two decimal places.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.)...

  • How should the capital structure weights used to calculate the WACC be determined? Imagine you are...

    How should the capital structure weights used to calculate the WACC be determined? Imagine you are making this recommendation for a company. It needs to include, the recommendation, background about the recommendation, three reasons of rationale, risk analysis, and the next steps. These only need to be a few sentences each.

  • Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of...

    Each of the following factors affects the weighted average cost of capital (WACC) equation. Which of the following factors are outside a firm's control? Check all that apply. Interest rates in the economy The firm's capital structure The performance of index funds, such as the S&P 500 The impact of cost of capital on managerial decisions Consider the following case: Marston Manufacturing Company has two divisions, L and H. Division L is the company's low-risk division and would have a...

  • The instructor said reasons why a company’s Weighted Average Cost of Capital (“WACC”) is critically important...

    The instructor said reasons why a company’s Weighted Average Cost of Capital (“WACC”) is critically important include:______. a. the WACC is the minimum rate of return to be earned on Common Stock. b. the WACC is the rate of return which must be earned by the Common and Preferred Stockholders. c. the WACC is the minimum rate of Free Cash Flow return to be earned on Total Assets. d. the WACC is the maximum amount of financial costs a company...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT