Chapter 9, Problem 9.18P

Summary Introduction

To discuss:

Whether John should take a consolidated loan or continue with his 3 individual loans.

Introduction:

The weighted average cost of capital is defined as the expected average cost from the different forms of capital issued by a company. It can also be considered as the average cost of long-term financing of a firm. WACC is calculated as a weighted proportion of the cost of various components in the capital structure.

${\text{r}}_{\text{WACC}}=\left({\text{w}}_{\text{d}}\times {\text{r}}_{\text{d}}\right)+\left({\text{w}}_{\text{p}}\times {\text{w}}_{\text{p}}\right)+\left({\text{w}}_{\text{s}}\times {\text{r}}_{\text{s}}\right)$