how to use the WACC formula for beta with debt and equity?
how to use CAPM to get cost of equity?
WACC with debt and equity = (cost of equity× market value of equity÷E D)+ (rate of debt net after tax × market value of debt÷ E D)
where
E | = | Market value of equity |
D | = | Market value of debt |
- In the above formula to get cost of equity, usually calculated using the capital asset pricing model (CAPM), which defines the cost of equity as follows:
cost of equity = rf | + | β | × | (rm − rf) |
rf | = | Risk-free rate |
β | = | Predicted equity beta (levered) |
(rm − rf) | = | Market risk premium |
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