Weighted Average Cost of Capital

Instructions:

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question 1 of 3

The percentage return that individuals who purchase a company's stock expect to receive is called _____.

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1. Why does the term (1 - t) appear in the WACC formula?

2.

Y Corporation needs to raise capital to purchase new equipment for its research laboratory. Use the following information to compute the WACC for Y Corporation.

Equity financing = $200,000

Cost of equity = 10%

Debt financing = $400,000

Cost of debt = 5%

Tax rate = 30%

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About This Quiz & Worksheet

Use this short quiz and worksheet to quickly and effectively check your understanding of the weighted average cost of capital (WACC). Assess your knowledge of WACC as a concept, and gauge your comprehension of the formula used to compute it. The questions on these assessments are multiple choice. Feel free to take the quiz online or print the worksheet to write out your answers.

Quiz & Worksheet Goals

This quiz and worksheet assess your understanding of the following:

  • Basic details about the weighted average cost of capital
  • Formula used to calculate WACC
  • Costs companies incur when individuals purchase company shares
  • How to compute the net cost of debt

Skills Practiced

  • Information recall - access the knowledge you've gained regarding steps involved in calculating the net cost of debt
  • Knowledge application - use your knowledge to answer questions about the formula for computing WACC
  • Reading comprehension - ensure that you draw the most important information from the related lesson covering the weighted average cost of capital

Additional Learning

Accompanying this quiz and worksheet is the lesson called Weighted Average Cost of Capital. In addition to topics covered in these assessments, this lesson explores the following:

  • Forms of equity securities
  • What companies pay when borrowing debt securities
  • The meaning of symbols E, V, Re, D, Rd and Tc
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