Difference between revisions of "Four ways to weight capital"
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| − | + | In the formula for the [[WACC|WACC]]: | |
| + | |||
| + | <math>\text{WACC} = W_D*C_{debt} + W_E*C_{equity}</math> | ||
| + | |||
| + | With: | ||
| + | <math>W_D</math> = [[Weight for debt|Weight for debt]] | ||
| + | <math>C_{debt}</math> = [[Cost of Debt|Cost of Debt]] | ||
| + | <math>W_E</math> = [[Weigth for Equity|Weigth for Equity]] | ||
| + | <math>C_{equity}</math> = [[Cost of Equity|Cost of Equity]] | ||
| + | |||
| + | There are for ways to determine weight for capital: | ||
| + | |||
| + | # Book value | ||
| + | ## <math>\text{Market Value(Equity)} = \text{Common Shares Outstanding} * {P_0}</math> | ||
| + | # Market value: | ||
| + | ## <math>\text{Market Value(Debt)}</math> | ||
| + | # Marginal weights | ||
| + | ## | ||
| + | # Target weights | ||
| + | ## Based on ideal capital structure | ||
| + | ## Single [[WACC|WACC]] based on that so called optimal structure | ||
[[Category:finance]] | [[Category:finance]] | ||
Latest revision as of 19:24, 27 August 2020
In the formula for the WACC:
With: = Weight for debt = Cost of Debt = Weigth for Equity = Cost of Equity
There are for ways to determine weight for capital:
- Book value
- Market value:
- Marginal weights
- Target weights
- Based on ideal capital structure
- Single WACC based on that so called optimal structure