Weighted Average Cost of Capital
Once the cost of individual components of the capital structure have been computed. weights may be assigned to these costs and a weighted average cost of capital calculated. Its computation requires three steps:
- The computation of weights to be assigned to each type of funds;
- The assigned of costs to various sources of capital ; and
- The calculation of the weighted average of these costs by adding up the products of all types of capital multiplied by their appropriate weights.