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The Weighted Average Cost of Capital
SUBJECT : Financial Management
PUBLISHED ON : 16/09/13
NUMBER OF PAGES : ( 9 Pages)
PRICE : Rs 6.75

Cost of equity, Cost of debt and the cost of retained earnings were thus arrived at. For these components to be useful from the corporate perspective they have to be consolidated. In other words, the cost of capital of an organization as a whole would encompass the individual costs of capital of the "components. This consolidation is done by way of a weighted average of the individual components. The concept of WACC has application in a variety of managerial decisions as we see in the next section. Put in a different way, WACC can also be thought of as the firm's aspiration regarding the return it has to get on its projects. This aspiration is influenced by factors like the risk profile of the company, its capital structure and its ability to borrow.

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