List the main components of WACC & how do you calculate the WACC?
The main components of WACC are the cost of debt and the cost of equity.
We can calculate the WACC as given below
WACC = [ Ve / Ve + Vd ] ke + [ Vd/ Ve + Vd ] kd ( 1- T)
Ve = market value of the equity that is the value of share price ex-div X number of shares
Vd = market value of debt which is the market value of debentures + loan amount
ke = cost of equity
kd = cost of debt
T = company profit tax rate
NOTE: This is one of the most important investment banking technical questions.