Question

What is Rstock? and How do you find it? I' am trying to find it to enter into my WACC formula. WACC = W_debt (1-T_C)R_debt  + W_{preferred stock} . R_pF  + W_{common stocks} . R_stocks

_{The very last one that say's Rstock I can't quite figure that out.}

Answer 1

Here, Rstocks is the Cost of the stocks that is the return that is paid on the stocks. It can be calculated by dividing next dividend to be paid on the stock by the price of the stock and adding grwoth rate of the dividend if present.

Rstocks = D1/P0 +g

here, D1 is the next dividend to be paid.

P0 is the price of teh stock

g is the growth rate of the dividend. For constant dividend it is zero.

Hope, now your doubt is clear. Let me know in the comment section if you are still facing any problem. Thank you.