Wd in the WACC formula stands for _______________.a.Cost of after-taxb.Weight of debt financingc.Weight of equity financingd.Cost of debt after tax

Breakdown of the Problem

We need to identify what "Wd" stands for in the context of the WACC (Weighted Average Cost of Capital) formula.

Relevant Concepts

The WACC formula is expressed as: $\text{WACC} = Wd \times Rd \times (1 - T) + We \times Re$ Where:

• $Wd$ = Weight of debt financing
• $Rd$ = Cost of debt
• $T$ = Tax rate
• $We$ = Weight of equity financing
• $Re$ = Cost of equity

Analysis and Detail

In the WACC formula, "Wd" represents the proportion of debt in the overall capital structure of a company, and it reflects how much of the company's financing comes from debt.

Verify and Summarize

Evaluating the options:

• a. Cost of after-tax: This is incorrect since it's referring to cost rather than weight.
• b. Weight of debt financing: This is consistent with the definition of Wd in the WACC formula.
• c. Weight of equity financing: This is incorrect as it refers to equity, not debt.
• d. Cost of debt after tax: This describes the cost, not the weight.

Final Answer

Wd in the WACC formula stands for b. Weight of debt financing.