What is the company cost of capital for a firm financed with 30% debt if the debt requires a 10% return and equity requires a 16% return?
Question
Solution 1
The company's cost of capital, also known as the Weighted Average Cost of Capital (WACC), is calculated by taking the weighted average of the cost of debt and the cost of equity. The formula is:
WACC = (Weight of Debt x Cost of Debt) + (Weight of Equity x Cost of Equity)
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