APMWACC CAlculation

Hello there Firstly there seems to be a typo in the expression (1/1/3), which I believe should be (1/1.3) Moving on... In WACC calculation, the cost of equity or Ke has to be weighted based on the ratio of equity to (equity + debt) and cost of debt or Kd (post tax) based on the ratio of debt to (equity + debt) before adding both %s together. This will look like as follows: WACC = [ (Ve/(Ve+Vd) X Ke ] + [ (Vd/(Ve+Vd) X Kd (1-T) ] In your question, Debt to Equity, given is 30% or 30/100 based on which: Ve = 100 or 1 Vd = 30 or 0.3 Ve+Vd = 130 or 1.3 Post tax Kd = 6.5% X (1-0.25) Ke = 15.7% Applying the above formula, WACC = [ (1 / 1.3 X 15.7% ) + (0.3 / 1.3 x (6.5% x 0.75) ] WACC = 13.2% Answering your question.. As you may notice in the above formula and the application, [1 / 1.3] is actually the ratio of Equity (100% or 1) to Equity + Debt (100% + 30% or 1.3). Where as [0.3 / 1.3] is actually the ratio of debt (30% or 0.3) to Equity + Debt (100% + 30% or 1.3). HTH

Thanks a million for the clarification. I really appreciate your response.