Sample Essay

The Weighted Average Cost of Capital can be calculated using the formula:

W.A.C.C = WdKd + WeKe + WpsKps

The formula indicates that we have to calculate the weights and costs of all the components of capital. The weight of debt is multiplied with the cost of debt, the weight of common stock is multiplied by cost of common stock and the weight of preference shares is multiplied with the cost of preference shares and all these products are added to arrive at the value of Weighted Average Cost of Capital. In the case of Foundation Coal there are no preference shares therefore only the weights and costs of common stock and debt will be calculated. The weights of the individual components are calculated by adding up all the dollar values of the components and then dividing each component by the total weight.

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