How can we evaluate cost of capital

Question

How can we evaluate cost of capital?

Answer 1

Cost of capital is evaluated in terms of prejudiced average cost of capital. In this the total capital value of a firm devoid of any outstanding warrants and the cost of its debt are comprised together to compute the cost of capital.

To compute the company's weighted cost of capital, foremost the computation of the costs of the particular financing sources:

Cost of Equity Capital, Cost of Debt, Cost of stock capital, and cost of Preference Capital occur and the formula is illustrated below:-

WACC= WD (cost of debt) + WS (cost of stock/RE) + WP (cost of pf. Stock)

Where WACC= weighted average cost of capital