#### Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

#### CFA Events Calendar

View full calendar

# weight cost of capital

United StatesPosts: 8 Associate
If my DEBT to Equity ratio is .60 percent.  What is the weighted cost of capital that goes to debt and what amount is equity.  Also, how is it calculated?
Tagged:

• LondonPosts: 155 Jr Portfolio Manager
If your debt to equity ratio is 0.6, that means for every 1 unit of debt you have 1/0.6 = 1.666* units of equity.

That means your debt + equity = 1 + 1.666* = 2.666*

So from that we can work out the relevant weightings for the WACC calculation as follows:

Debt = 1/2.666*= 0.375

Equity = 1.666*/2.666* = 0.625 or of course it can also be calculated as 1 - 0.375 = 0.625

• MA, USAPosts: 222 Jr Portfolio Manager
Don't even have to do that much.  No need to get a reciprocal. Debt/equity is .6 so there's .6 debt per 1 equity. So debt is .6/1+.6= .6/1.6= .375. Equity =1-.375=.675
• United StatesPosts: 8 Associate
thanks, much appreciated
• MA, USAPosts: 222 Jr Portfolio Manager
Always happy to help.  When I can lol
• IndiaPosts: 2 Associate
WACC =[ (1-t)*(D/V)*kd)] + [(E/V)*ke]
where, D=Debt
E=Equity
t=tax rate
V=D+E
kd=cost of debt
ke=cost of equity