Explain in detail? what is wd, Rd, and we? ANSWER The corporate cost of capital is merely

Explain in detail? what is wd, Rd, and we?

 

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ANSWER The corporate cost of capital is merely the weighted average (blend) of the component costs: Corporate cost of capital = [wd x R(Rd) x (1 - T)] + [we x R(Re)] [0.35 x 7.0% x (1 - 0.00)] + [0.65 x 13.5%] = 2.45% + 8.775% = 11.2% = Spreadsheet solution: wd = R(Rd) = T = We = R(Re) = 35% 7% 0% 65% 13.5% ANSWER The corporate cost of capital is merely the weighted average (blend) of the component costs: Corporate cost of capital = [wd x R(Rd) x (1 - T)] + [we x R(Re)] [0.35 x 7.0% x (1 - 0.00)] + [0.65 x 13.5%] = 2.45% + 8.775% = 11.2% = Spreadsheet solution: wd = R(Rd) = T = We = R(Re) = 35% 7% 0% 65% 13.5%

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wd represents the weight of debt in the companys capital structure This is the proportion of financi... View the full answer