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Financing – Capital structure

The impact of capital structure on the

WACC

1.1 The weighted average cost of capital (WACC)

The WACC is calculated using the following formula:

V E V D
WACC = k [ ] + k [1 – t] [ ]
eg
d
V + V D V + V D
E
E
1.2 The impact of changing capital structure

It is clear that if a company changes its capital structure (gearing level), the WACC
will change, since the ratio of debt to equity is a key variable in the formula.

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