Calculation of weighted average cost of capital, Financial Management

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Calculation of Weighted Average Cost of Capital

The calculation of weighted cost of capital involves the following steps:

(i) Calculate the cost of each source of funds.

(ii) Allocate weights to specific costs

(iii)Multiply the cost of every of the sources by the assigned weights

(iv) Divide the whole weighted cost by the total weights

Formula:-

K_w = ? XW / ? W

K_w = Weighted Average Cost of Capital

X = Cost of specific source of finance

W = Weight of specific source of finance.

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