How do you calculate the weighted average cost of capital?
submitted by Lynn

randy

That's a long term, so we call it WACC.

To find the WACC, you basically see what mix of debt and money from investors the company uses, find out how much it costs to borrow money and how much it costs to get investors to put in money, then average those costs based on how much of each they have.

lui g

You add up the costs of debt and equity, but you give more importance to the part that makes up more of the company's funding. So, you find the interest rate for debt, the expected return for equity, then do some math to get the average based on how much of each there is.

todd

Companies can be funded by equity and by debt. WACC is figuring out how much each type of funding is costing a company, and then averaging that together.