Question

Which information is NOT required when calculating the weighted average cost of capital for a company with debt?

Its capital structure ratios

Its cost of debt

Its current ratio

Its tax rate

Answer 1

The Answer is “ It’s Current Ratio “

- The Current Ratio of a company is not relevant for calculating the Weighted Average Cost of capital [WACC] for a company

- The Relevant Information’s required for determining the WACC are the it’s Capital Structure ratio’s [Which means the weights of the each capital components in it’s capital structure], Cost of Debt, Cost of Equity or Cost of common stock, Cost of Preferred Stock and Applicable Tax Rate

- Weighted Average Cost of Capital [WACC] = [After Tax Cost of Debt x Weight of Debt] + [Cost of Preferred stock x Weight of preferred stock] + [Cost of equity x Weight of common stock]