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Calculation of weighted average cost of capital

Calculation of weighted average cost of capital: Under this following steps are undertaken:

1. Record amount in respect of various long term resources of firm.

2. Add up the amount of all long term resources to obtain total of the long term resources of the capital.

3. Calculate proportion of various long term resources to total of long term resources by dividing amount obtained in step 1 above by amount obtained in step 2 above.
4. Obtain information about expected returns of various long term resources or their cost of capital rate.

5. Multiply step 3 amount with step 4 figures to obtain proportionate cost of individual long term resources.

6. Add up the various costs obtained under step 5 to obtain weighted average cost of capital.

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