The weighted average cost of capital is estimated as K_c = w_dK_d + w_pK_p + w_eK_e,where the w's represent the weights.The weights must sum to more than one so that the manager can then subtract taxes from the equation.

Question

Quizplus · Accepted Answer

The weights must sum to one, not more than one, for the calculation of weighted average cost of capital. The formula should be: K_c = w_dK_d + w_pK_p + w_eK_e - T, where T is the tax rate.

The Weighted Average Cost of Capital Is Estimated as Kc

The Weighted Average Cost of Capital Is Estimated as K_c