Describe composite cost of capital

Question

Briefly describe composite cost of capital? And also describe the procedure to calculate composite cost of capital?

Answer 1

Composite cost of capital is also termed as weighted average cost of capital that is a calculable unit for it. It as well tells about the constituent costs of common stock, preferred stock, and debt. Each of these constituents is given weighted on the base of the associated interest rate and losses and other gains with it. It shows the cost of each other capital as alongside the average cost of total capital increased. The procedure to calculate this is primary calculating the weighted average cost of capital that is the compilation of weights of further costs summed together. The method is given as:-

WACC = WD (cost of debt) + Ws (cost of stock/RE) + WP (cost of pf. Stock)