6. The basic WACC equation

The calculation of a weighted average cost of capital (WACC) involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firms overall capital structure.

is the symbol that represents the after-tax cost of debt in the weighted average cost of capital (WACC) equation.

Brian Co. has $2.3 million of debt, $1.24 million of preferred stock, and $2.53 million of common equity. What would be its weight on debt?

16.34%

18.39%

37.89%

22.47%