Capital Structure Question:
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What is How is the cost of capital measured?
Answer:
Cost of capital is measured in terms of weighted average cost of capital. In this the total capital value of a firm without any outstanding warrants and the cost of its debt are included together to calculate the cost of capital.
To calculate the company's weighted cost of capital, first the calculation of the costs of the individual financing sources:
Cost of Debt Cost of Preference Capital, Cost of Equity Capital, and cost of stock capital take place and the formula is given as:-
WACC= Wd (cost of debt) + ws (cost of stock/RE) + wp (cost of pf. Stock)
where WACC= weighted average cost of capital
To calculate the company's weighted cost of capital, first the calculation of the costs of the individual financing sources:
Cost of Debt Cost of Preference Capital, Cost of Equity Capital, and cost of stock capital take place and the formula is given as:-
WACC= Wd (cost of debt) + ws (cost of stock/RE) + wp (cost of pf. Stock)
where WACC= weighted average cost of capital
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