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how to use the WACC formula for beta with debt and equity? how to use CAPM...

how to use the WACC formula for beta with debt and equity?

how to use CAPM to get cost of equity?

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Answer #1

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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