Weighted Average Cost of Capital and Weighted Marginal Cost of Capital

This article discusses the calculation of weighted average cost of capital (WACC) and weighted marginal cost of capital (WMCC). WACC is a measure of the cost of capital for a company, taking into account the different sources of financing used by the company. WMCC is the WACC applicable to the next dollar of the total new financing.

Questions

• How is WACC calculated?
• What is WMCC?
• How do you calculate WMCC?

Answers

• WACC is calculated by weighting the after-tax costs of the different sources of financing used by a company, according to their respective proportions in the capital structure.
• WMCC is the WACC applicable to the next dollar of the total new financing. It is calculated by weighting the after-tax costs of the different sources of financing, according to their expected proportions in the new capital structure.
• To calculate WMCC, you can use the following formula:

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WMCC = Σ(wi * ki)
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where:

* wi is the proportion of the new financing that will come from source i
* ki is the after-tax cost of source i