To calculate the weighted-average cost of capital we need to know
A)The relative percentage of capital provided by each source.
B)The required rate of return.
C)Both the relative percentage of capital provided by each source and the required rate of return.
D)Neither the relative percentage of capital provided by each source nor the required rate of return.

Question

Quizplus · Accepted Answer

Both the relative percentage of capital provided by each source and the required rate of return are needed to calculate the weighted-average cost of capital. The formula for WACC is [(percentage of debt financing x cost of debt) + (percentage of equity financing x cost of equity)]. Therefore, knowing the relative percentage of each source of capital and their required rates of return is essential for calculating WACC.

To Calculate the Weighted-Average Cost of Capital We Need to Know