Weighted average cost of capital combines the cost of debt and equity using their capital weights.
| Input | What it means |
|---|---|
| Cost of equity | The shareholder funding or residual ownership value used in the selected ratio. |
| Cost of debt | The cost amount included by this calculation; keep it on the same basis as the selling amount. |
| Corporate tax rate | The stated rate or percentage, entered using the scale and time period shown in the form. |
| Equity | The shareholder funding or residual ownership value used in the selected ratio. |
| Debt | Borrowing included in the ratio’s debt definition, measured on the same valuation date as equity. |
Equal debt and equity, 10% equity cost, 6% debt cost and 25% tax give 7.25%.
Compare the result with the underlying statement, budget or proposed transaction. It is most useful when every amount uses the same reporting period and the same accounting definition.
Use one consistent period for every amount and rate in the relationship. If a form specifies an annual rate or a monthly amount, follow that label rather than mixing time periods.
Only the costs and taxes represented by the inputs and formula are included. A real transaction can include other charges, so compare the estimate with the underlying agreement or statement.
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