List the main components of WACC & how do you calculate the WACC?

1.	List the main components of WACC & how do you calculate the WACC?
Answer» The main components of WACC are the cost of debt and the cost of equity. We can calculate the WACC as given below WACC = [ Ve / Ve + Vd ] ke + [ Vd/ Ve + Vd ] kd ( 1- T) Where, Ve = market VALUE of the equity that is the value of share price ex-div X number of shares Vd = market value of debt which is the market value of debentures + loan amount ke = cost of equity kd = cost of debt T = company profit tax rate NOTE: This is ONE of the most important investment BANKING technical questions.

Answer»

The main components of WACC are the cost of debt and the cost of equity.

We can calculate the WACC as given below

WACC = [ Ve / Ve + Vd ] ke + [ Vd/ Ve + Vd ] kd ( 1- T)

Where,
Ve = market VALUE of the equity that is the value of share price ex-div X number of shares
Vd = market value of debt which is the market value of debentures + loan amount
ke = cost of equity
kd = cost of debt
T = company profit tax rate

NOTE: This is ONE of the most important investment BANKING technical questions.

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