How to Calculate WACC Given You Have COD and COE

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Weighted Average Cost of Capital (WACC) represents a company’s average cost of financing. It includes the Cost of Debt (COD) and Cost of Equity (COE). To calculate WACC, you need these components along with the proportion of debt and equity in the capital structure.

WACC Formula and Calculation

The formula for WACC is:
WACC = (E/V * COE) + (D/V * COD * (1 – Tax Rate))
Where:

  • E = Market value of equity
  • D = Market value of debt
  • V = Total capital (E + D)
  • COE = Cost of Equity
  • COD = Cost of Debt
  • Tax Rate = Corporate tax rate

Applying the Formula

Substituting the given COD and COE values along with capital proportions, you can compute WACC accurately. Ensure the tax rate is considered for debt cost adjustments.

Conclusion

Using COD and COE in the WACC formula helps determine a company’s financing cost effectively.