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30 May, 01:42

One calculates the after-tax weighted average cost of capital (WACC) using which formula?

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  1. 30 May, 03:46
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    Weighted average cost of capital

    = Ke (We) + Kp (Wp) + Kd (Wd) (1 - T)

    Where

    Ke = Cost of equity

    We = Weight of equity in the capital structure

    Kp = Cost of preferred stock

    Wp = weight of preferred stock in the capital structure

    Kd = Cost of debt

    Wd = Weight of debt in the capital structure.

    T = Tax rate

    Explanation:

    Weighted average cost of capital equals cost of equity multiplied by the weight of equity in the capital structure plus cost of preferred stock multiplied by weight of preferred stock in the capital structure plus after tax cost of debt multiplied by weight of debt in the capital structure.
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