WEIGHTED AVERAGE

COST OF CAPITAL
(WACC)
WHAT IS WACC?
Weighted Average Cost of Capital
A calculation of a firm's cost of
capital in which each category of capital
is proportionately weighted.
COST OF DEBT
The interest rate which should pay by particular
company or person for the burrowed amount of
money

COST OF EQUITY
The rate of return of a shareholder which is
required from his investment

PREFERENCE SHARES
Dividends that are paid to shareholders before
common stock dividends are paid out.

EXAMPLE

CIC Holdings PLC

Data

Long term borrowing Rs 18,470,000.00
Ordinary Share Rs 789,750,000.00
Non-Voting Share Rs 218,700,000

COST OF EQUITY FOR ORDINERY SHARES

CAPM method (Capital Asset Prizing
Model)
Discount Cash Flow Approach
Debt Policy method

We will consider CAPM method
CAPM METHOD

Cost equity
Weighted rate for cost of equity




Weighted Weighted Rate Cost
Cost = for Cost x of
of Equity of Equity Equity


Weighted Cost of equity = 76.9% x 17.4%
= 13.38%

COST OF EQUITY FOR NON VOTING
SHARES

What is non voting shares
Non voting shares represent partial ownership
in a company.
But do not have the authority to vote for
company decisions.
=21.3% x 17.4%
= 3.71%
Weighted Cost of Equity =
Weighted Cost of Equity +
Weighted non-voting shares
=13.38%+3.71%
=17.09%



Weighted Average Cost of Capital
(WACC)


Weighted Average Cost of Capital
(WACC)

Cost of debt

Cost of Equity