The formula to calculate the Weighted Average Cost of Capital (WACC) is:
\[ \text{WACC} = \frac{E}{E + D} \times \text{Ce} + \frac{D}{E + D} \times \text{Cd} \times (1 - \text{T}) \]
Where:
WACC (Weighted Average Cost of Capital) is a measure that indicates the average cost of capital a company faces when financing its operations through equity and debt. It helps determine if a company's investments are generating returns greater than the cost of capital, ensuring profitability and financial health.
Let's assume the following:
To calculate the WACC:
\[ \text{WACC} = \frac{700,000}{700,000 + 500,000} \times 0.15 + \frac{500,000}{700,000 + 500,000} \times 0.08 \times (1 - 0.20) \]
\[ \text{WACC} = 0.583 \times 0.15 + 0.417 \times 0.08 \times 0.80 \]
\[ \text{WACC} = 0.0875 + 0.0267 = 0.1142 = 11.42\% \]
Therefore, the Weighted Average Cost of Capital (WACC) is 11.42%.