00:01
To calculate the firm's weighted average cost of capital.
00:08
Calculate the firm's weighted average cost of capital.
00:33
For this, we need to determine the weighted average of an individual cost of each source of capital using their respective market values as weights.
00:43
The formula to calculate wacc is wd into rd plus wps into rps plus we into wd is the weight of the debt, rd is the cost of the debt, wps is the weight of preferred stock, rps is the cost of preferred stock, we is the weight of common stock equity, and r is the cost of common stock equity.
01:27
What we are provided with is the market value of long -term debt, that is wd, which is $7 ,000 ,000, $7 ,000 ,000, and the cost of long -term debt, that is rd, which is equals to 5 .3 % and wps is the market value of preferred stock, $3 ,000.
02:05
The cost of preferred stock, that is the rps, given is 12 % and the we is the market value of common stock, given is cost of common stock equity, the r, which is given is 16 .0%.
02:37
So now let's calculate the wac.
02:44
Wac equals to divided by dollar into $0 .0, divided by dollar, 16 .0%.
03:42
So the firm can use the wac as a discount rate in the investment decision -making process...