Weighted Average Cost of Capital

The Weighted Average Cost of Capital (WACC) is the average required return that a
company must earn on its existing asset base to satisfy its creditors, owners, and other
providers of capital. It is calculated by multiplying the cost of each source of capital by
its respective weight and then summing the results.

Here is the formula for calculating WACC:

WACC = (E/V) * Re + ((D/V) * Rd) * (1-Tc)

Where:

 E: The market value of the company's equity

 V: The market value of the company's total capital (i.e., debt + equity)
 Re: The required return on the company's equity
 D: The market value of the company's debt
 Rd: The required return on the company's debt
 Tc: The company's corporate tax rate

To use this formula, you will need to know the market values of the company's equity
and debt, as well as the required returns on each. You will also need to know the
company's corporate tax rate. Once you have all of this information, you can plug it into
the formula and calculate the WACC.

It is important to note that the WACC is a weighted average, meaning that each
component (i.e., equity and debt) is given a weight based on its relative importance in
the company's capital structure. The weights should be based on the market values of
the equity and debt, not the book values. This is because the market values reflect the
current risk and required return of each component, while the book values do not.