Page 159 - F3 Integrated Workbook STUDENT 2019
P. 159
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
d
eg
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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