Weighted average cost of capital, Financial Management

Weighted Average Cost of Capital

Weighted average cost of capital is the average cost of the costs of several sources of financing. Weighted average cost of capital is also known as composite cost of capital, in general the cost of capital or average cost of capital. Once the particular cost of individual sources of finance is determined, we can calculate the weighted aver- age cost of capital by putting weight to the particular costs of capital in proportion of the various sources of funds to the total.  The weights may be given either by using the book value of the source or market value of the source.  The cost of capital calculated as per to the market value weight is generally higher than the book value weights and market value weights are sometimes preferred to the book value weights because the market value represents the true value of the investors.

Step 1: Calculate the Cost of the particular sources of funds (that is cost of debt/equity/preference capital, etc.)

Step 2: Multiply the cost of each source by its proportion in the capital structure.

Step 3:  Add the Weighted component costs to get the firm's Weighted average cost of capital.

Posted Date: 10/16/2012 1:03:29 AM | Location : United States







Related Discussions:- Weighted average cost of capital, Assignment Help, Ask Question on Weighted average cost of capital, Get Answer, Expert's Help, Weighted average cost of capital Discussions

Write discussion on Weighted average cost of capital
Your posts are moderated
Related Questions
Lincoln Park Zoo in Chicago is considering a renovation that will improve some physical facilities at a cost of $1,800,000. Addition of new species will cost another $310,000. Addi

The issuers of ALBS are the financial subsidiaries of automobile manufacturers, commercial banks and other independent finance companies and small financial insti

The United States has experienced continuous current account deficits as the early 1980s. What do you think are the major causes for the deficits? What would be the results of cont

Q. Explain career counselling process? The career counselling process should contain the following elements: a. The employee's should goals, aspirations and expectations wit

Q. Show the Advantages of IRR Method? Advantages of IRR Method:- (i) Similar to the other DCF methods IRR methods as well take into consideration the time value of money.

Relevance of Development of Money Market The development of the money market is important for the debt market especially through the process of liquidity. The money market prov

A procedure that invented in the 1980s for evaluating the processes of a business to find strengths and weaknesses. Specially, activity-based management finds out areas where a bus

a) Stockpiles refers to the accumulated (or excess level of) supply Ford motor vehicles, i.e. too much production given the level of demand. The purpose is to prevent possible shor

Bond Price is the purchase value of a bond. It can be priced either at a premium, discount or at par. It is important for the prospective buyer to know how to det

QUESTION The Stock of Max Ltd performs relatively well compared to other stocks during recessionary periods. The stock of Bax Ltd, on the other hand, does well during growth p