• Originally published: 26/03/2018 12:41
Publication number: ELQ-61181-1
View all versions & Certificate # How to Calculate WACC, Cost Equity and Debt

This video teaches you how to calculate WACC, Cost of Equity and Debt.

Description
This video explains how to calculate cost of equity and cost of debt. If we want to discount cashflows, we need to use WACC.

> WACC = Weighted Average Cost of Capital
> A calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources (inc. preferred stock, common stock, bonds and any other long-term debt) are included in the calculation.
> WACC is calculated by multiplying the cost of each capital component by its proportional weight and then summing.
> Cost of equity is calculated using the CAPM method
> Cost of Equity = Rf + B (Rm-Rf)

Cost of Capital :
WACC = E-V x Ke + D-V x Kd x(1-T)
Where:
Ke = cost of equity
Kd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V=E+D
E-V = percentage of financing that is equity
D-V = percentage of financing that is debt
T = corporate tax rate

Video length: 6:44

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