Complete the following table to calculate a firm’s Weighted Average Cost of Capi
ID: 2578961 • Letter: C
Question
Complete the following table to calculate a firm’s Weighted Average Cost of Capital.
Type of Capital
Amount
% of Total
Cost
Product *
Debt
$10,000,000
4.6%
Preferred Stock
$0
N/A
Common Stock
$15,000,000
14.0%
Total
$25,000,000
100%
WACC =
* Carry to two decimal places
Now that you have completed a calculation of Weighted Average Cost of Capital (WACC), describe in your own words: What does WACC actually tell you?
Type of Capital
Amount
% of Total
Cost
Product *
Debt
$10,000,000
4.6%
Preferred Stock
$0
N/A
Common Stock
$15,000,000
14.0%
Total
$25,000,000
100%
WACC =
Explanation / Answer
CALCUALATION OF WACC Particlulars Amount Cost Weight WACC = ( Weight* Cost) Debt $ 1,00,00,000 4.60% 40.00% 1.84% Preferred Stock $ - N.A 0.00% 0.00% Equity Stock $ 1,50,00,000 14.00% 60.00% 8.40% Total $ 2,50,00,000 100.00% 10.24% WACC = 10.24% CALCULATION OF THE WEIGHT Weight of Equity Stock = (Value of Equity Stock / Total Value) x 100= $ 1,50,00,000 "/ " By $ 2,50,00,000 X 100 = 60.00 Weight of Debt = (Value of Debt / Total Value ) x 100 = $ 1,00,00,000 "/ " By $ 2,50,00,000 X 100 = 40.00 WACC means the minimum rate of return is required for the company against the investment made in company. Means if there is investment of $ 1 so in the above company we have to earn minimum 10.24% for carrying the equivalent to cost.