Calculation
In general, the WACC can be calculated with the following formula:
where is the number of sources of capital (securities, types of liabilities); is the required rate of return for security ; is the market value of all outstanding securities .
Tax effects can be incorporated into this formula. For example, the WACC for a company financed by one type of shares with the total market value of and cost of equity and one type of bonds with the total market value of and cost of debt, in a country with corporate tax rate is calculated as:
Actually carrying out this calculation has a problem. There are many plausible proxies for each element. As a result, a fairly wide range of values for the WACC for a given firm in a given year, may appear defensible, see Frank and Shen (2012).
Read more about this topic: Weighted Average Cost Of Capital
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