WACC = wdrd(1 – t) + wprp + were

where

wd = the proportion of debt that the company uses when it raises new funds

rd = the before-tax marginal cost of debt

t = the company’s marginal tax rate

wp = the proportion of preferred stock the company uses when it raises new funds

rp = the marginal cost of preferred stock

we = the proportion of equity that the company uses when it raises new funds

re = the marginal cost of equity

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2. COST OF CAPITAL
al. The weights in this weighted average are the proportions of the various sources of capital that the company uses to support its investment program. Therefore, the WACC, in its most general terms, is Equation (1)  <span>WACC = w d r d (1 – t) + w p r p + w e r e   where w d = the proportion of debt that the company uses when it raises new funds r d = the before-tax marginal cost of debt t = the company’s marginal tax rate w p = the proportion of preferred stock the company uses when it raises new funds r p = the marginal cost of preferred stock w e = the proportion of equity that the company uses when it raises new funds r e = the marginal cost of equity <span><body><html>