How to Calculate Weighted Average Cost of Capital Using Excel

Description
Amazon.com is being used here as an example.

The first thing that must be done is find the tax rate. To find the tax rate, Matt has gone to the SEC filings and found their income before income taxes and the provision for income taxes for the past three years. It's probably a better idea to do it for the past 5 years, because their tax strategies appear to have changed over the years, but for simplicity's sake three years will suffice for this video.

To find the effective tax rate, you simply divide the provisions for income taxes by the earnings before taxes. Next, the annualized average is the three years for these three tax rates divided by three. So- add the tax rates, then divide by the number of years.

To find the cost of debt, you can go onto Standard and Poors rating agency, where you will see that their local long term debt has a rating of A. Then you'll go to Yahoo finance composite bond rates where you'll see the 20 year yield on corporate bonds is 4.72, so you add that in as our rate of debt.

The next thing you need to do is find their total debt. Watch the rest of the video to follow the process step by step.

Length: 5 minutes 55 seconds