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Describe WACC and its components
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WACC is the Weighted Average Cost of Capital which the company is expected to pay on the capital it has borrowed from different sources. WACC is sometimes referred to as the Firm’s Cost of Capital. The cost to the company for borrowing the capital is dictated by the external sources in the market and not by the management of the company. Its components are Debt, Common Equity, and Preferred Equity.

The formula for WACC

$\text{WACC} = (W_d \times K_d) + (W_e \times K_e) + (W_{ps} \times K_{ps})$

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