Q1. The following data is available in respect of a company : Equity Rs.10lakhs,cost of capital 18% Debt Rs.5lakhs,cost of debt 13% Calculate the weighted average cost of funds taking market values as weights assuming tax rate as 40% Hint: WACC = W e K e + W p K p +W r K r + W d K d + W t K
WACC = 0.67*.18+0.33*13(1-.40)
=0.146 or 14.6%
A calculation of a firm’s cost of capital in which each category of capital is proportionately weighted. All capital sources – common stock, preferred stock, bonds and any other long-term debt – are included in a WACC calculation. All else equal, the WACC of a firm increases as the beta and rate of return on equity increases, as an increase in WACC notes a decrease in valuation and a higher risk.
Contact kvsude@gmail.com for getting complete assignments
