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Calculated on the weighted average cost of funds identified in the weights of

Abstract At present, we calculated the weighted average cost of capital in the determination of weights is not enough general interest, but it is related to the project investment and financing decision-making right or not. I start small, of the weighted average cost of capital calculation problems and lead to the impact, and gives the address of the measures. Key words weighted average cost of capital; weights; of investment from the enterprise or project to see all the funding sources, funding can not be obtained with a single, but a variety of financing combination. Different ways of financing have different costs of capital, in this case, companies or projects should be calculated weighted average cost of capital. Weighted average cost of capital is often the investment and financing programs to determine the feasibility of the project basis. Therefore, the correct calculation of the weighted average cost of capital at stake. However, I believe that in today's cost of funds related to the calculation of the weighted average formula, the number on the right to determine the existence of certain problems that may result in project investment and financing decision making. Here the author intends to discuss this issue. Chinese papers League finishing. An existing formula for calculating the weighted average cost of capital Weighted average cost of capital consolidated cost of capital, also known as (kw), is based on a variety of financing the cost of capital as the base, in a variety of financing the share of total capital is calculated as a weighted average of the right. Weighted average cost of capital is calculated as: where: Kw - weighted average cost of capital rate; Wj - j-species sources of funding the proportion of the total sources of funds; Kj - j-species of the cost of capital rate of funding sources; n - the type of financing. On the weighted average cost of capital to determine the weight, there are three ways: book value weights method, the market value method and the target weight value weight method. Second, the existing formula for calculating the weighted average cost of capital to determine the number of weight problems and solutions (a) the right to determine the number and caliber of the individual cost of capital is inconsistent and solutions We know the cost of capital formula for the individual, whether or not to consider the time value of money,[link widoczny dla zalogowanych], always will raise the total cost deducted from the financing to funding calculated on a net basis, and investment funds are only used in the net financing amount, but we calculate the weighted average cost of capital in the weights, it was to various sources of the proportion of total funding sources to calculate diameter inconsistencies may lead to poor decisions. Example 1, a company intended to raise funds for a project, in which long-term borrowing 200 million, 20 million in interest, fees are negligible, the total face value issued by an enterprise of 100 million 3-year bond coupon rate 12%, a premium of 10% of the sale, issue rate of 5%. In addition, the Company issued 500 million ordinary shares, is expected in the first year of the dividend rate of 15%, up 1% each year, raising the rate of 2%; issued preference shares 150 million, dividend rate is fixed at 20%, funding costs rate of 2%. The use of retained earnings from 40 million. The corporate income tax rate is 40%. All proceeds will finance the company invests in a new project. Individual cost of capital is calculated as follows: long-term borrowing cost of capital Ki = I (1-T) / [L (1-f)] = 20 (1-40%) / 200 = 6% long-term debt cost of capital Kb = I (1-T) / [B0 (1-f)] = 100 × 12% × (1-40%) / [100 × (1 +10%) (1-5% )] = 6.89% ordinary share capital costs Ks = D1 / [V0 (1-f)] + g = 500 × 15% / 500 (1-2%) +1% = 16.31% Preferred Capital Cost Kp = D / [P0 (1-f)] = 150 × 20% / 150 × (1-2%) = 20.41% retained earnings the cost of capital Ke = D1/V0 + g = 40 × 15% / 40 +1% = 16% weighted average cost of capital: Kw = 6% × (200 / 1 000) +6.89% × (110 / 1 000) +16.31% × (500 / 1 000) +20.41% × (150 / 1 000) +16% × (40 / 1 000) = 6% × 20% +6.89% × 11% +16.31% × 50 % +20.41% × 15% +16% × 4% = 13.8144% when the investment is greater than 13.8144 percent rate of return when the project is feasible.

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