Since the firm issued new stocks, I calculated two cost of retained earnings (one is rs which is the cost of internal equity or the firm's retained earnings, while the other is re or the cost of the external equity by raising issuing new stock), what should I use in solving the WACC?
Since the firm issued new stocks, I calculated two cost of
Weighted Average Cost of Capital (WACC) is the overall cost of capital from all the sources of finance. The WACC is the minimum required rate of return from the investment proposal. The WACC is the sum of the product of the weight of each source of finance and the cost of such a source of finance.
The weighted average cost of capital is the sum of the product of the weight of each source of finance and the cost of each source of finance. The source of finance are: Equity, Retained earnings, Preferred stock and Debt capital.
While calculating the WACC, the cost of retained earnings and the cost of equity both are used. The cost of retained earnings is multiplied with weights of retained earnings and the cost of equity is multiplied with weights of equity.
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