The weighted average cost of capital is defined as the weighted average of a firm's:

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The weighted average cost of capital is calculated by taking the weighted average of a company's cost of equity and its after-tax cost of debt. This is because a company's sources of financing typically include both equity (which has a cost, because investors demand a return) and debt (which also has a cost, because interest must be paid). The after-tax cost of debt is used in the calculation because interest payments on debt are tax-deductible, which reduces their effective cost to the company.

The Weighted Average Cost of Capital Is Defined as the Weighted