WACC = [kD(1 − T)× wD] + [kP × wP] + [kE × wE]

Name: WACC = [kD(1 − T)× wD] + [kP × wP] + [kE × wE]
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Question

Quizplus · Accepted Answer

This formula represents the Weighted Average Cost of Capital (WACC) calculation which includes the cost of debt (kD), cost of preferred stock (kP), and cost of equity (kE) weighted by their respective proportions in the company's capital structure. The cost of debt is multiplied by the after-tax rate (1-T) to reflect the tax benefits of interest payments.

WACC = [KD(1 − T)× WD] + [KP × WP]