Summary Weighted Average Cost of Capital

Weighted
Average
Cost of

Capital

What ?
WACC represents a
company's average after-tax cost of capital
from all sources (including ,
..
shares bonds , etc ) As such , WACC is the
finance its business
company expects
rate that to
average pay to
a .




Why ?
company has a responsibility to give a
The return to its
Funding
providers As WACC indicates the minimum rate at which the
.
company
should earn to Fulfill this ,
duty
this rate should be used when
investment decisions (the discount factor in investment
making
appraisal)

Steps to Calculate
1. Calculate the cost of Ordinary Shares
1 Calculate the cost of Preference Shares
111 .
Calculate the cost of your Debentures/Loans/Bonds
Iv Calculate the market value of Finance
your
v
. Calculate the WACC a WACC table
using


Book Value Market Value
Book value represents the The market value is the Fair
total amount of Share value of a stock that can be
Value% the number of readily bought or sold in the
shares Current MarlLet



Shares trade at two different prices
S Ex div value
Cum div value

Ex div value means that the most recent dividend declared has
been paid
Cum div value means the share value includes the most recent
dividend declared , as it has not been paid