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# How to Calculate Weighted Average Cost of Capital - Tutorial

## How to Calculate WACC - Definition, Formula and Example

#### Definition:

Weighted average cost of capital (WACC) is the minimum return which a company is supposed to give on an average to satisfy its entire security proprietors to finance its assets. This tutorial explains you how to calculate Weighted average cost of capital.

#### Formula:

WACC = (E/V x Re) + [(D/V x Rd) x (1-Tc)] V = E + D
###### Where,
WACC = Weighted Average Cost of Capital E = Market value of the firm's equity D = Market value of the firm's debt V = Firm Value Re = Cost of Equity Rd = Cost of Debt Tc = Corporate tax rate

#### Example :

Company Hiox has a beta of 1.65. The current equity market risk premium is 7%, and the risk-free rate is 3%. Its before-tax cost of debt is 6% and its marginal tax rate is 40%. The stock sells at Long-Term Debt 6000 and Equity 1500. Find the WACC percentage of the company.?

##### Given

Market value of the firm's equity (E) = 1500 Market value of the firm's debt (D) = 6000 Cost of Equity (Re) = 3% + (7% x 1.65) = 14.55% Cost of Debt (Rd) = 6% Corporate tax rate (Tc) = 40%

##### To Find,

Weighted Average Cost of Capital

##### Solution:
###### Step 1 :

Find value of V V = E + D V = 1500 + 6000 = 7500

###### Step 2 :

WACC = (E/V x Re) + [(D/V x Rd) x (1-Tc)] = (1500/7500 x 0.1455) + [(6000/7500 x 0.06) x (1-0.4)] = 5.79 %