Question

The basic WACC equation The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm’s overall capital structure. _______ is the symbol that represents the cost of raising capital through retained earnings in the weighted average cost of capital (WACC) equation. Wyle Co. has $3.9 million of debt, $3 million of preferred stock, and $3.3 million of common equity. What would be its weight on common equity? a. 0.29 b. 0.26 c. 0.32 d. 0.23

Answer 1

Answer:

$R{_s}$ is the symbol of cost of raising capital from retained earnings.

Weight of common equity = c) 0.32

Explanation:

$R{_s}$  is the symbol that represents the cost of raising capital through retained earnings in weighted average cost of capital.

Wyle Co.

Total of capital structure = Debt + Preferred Stock + Common Equity

= $3.9 million + $3 million + $3.3 million = $10.2 million

Weight on common equity = Equity/Capital structure

= $\frac{3.3 million}{10.2million}$ = 0.32

As weight is share of common equity out of total capital. It can be stated in percentage or decimal value.

$R{_s}$

C) 0.32