How is the weighted average cost of funds calculated?

Weighted average cost of capital From the perspective of the total capital of an enterprise**, it is impossible to obtain it by a single financing method, but a combination of various financing methods. Therefore, the total cost of capital of the enterprise cannot be determined by a single cost of capital, but needs to calculate the comprehensive cost of capital. The method of calculating the comprehensive cost of capital is:

It is calculated based on the weighted average of the weights of different funds. The weighted average cost of funds is calculated as:

nkw＝σwjkj

j=1 where: kw - weighted average cost of funds ratio;

WJ - the proportion of the jth type of funds** in the total funds**;

KJ - the cost of capital ratio of the jth type of funds**;

n - Types of financing methods.

Table 4 Costs of various types of funds.

Funds** Amount (10,000 yuan) (book value) Cost of capital.

Long-term borrowings 1500 6

Bonds 2000 7

Preferred stock 1000 11

Putong-Shares 3000 16

Retained earnings 2500 15

Total 10000

then the weighted average cost is:

The above calculation process can also be done in Table 5:

Table 5 Weighted average cost of funds.

Funds** Amount (10,000 yuan) Proportion Individual cost of funds weighted average cost of funds.

Long-term borrowings 1500 15 6 0 9

Bonds 2000 20 7 1 4

Preferred stock 1000 10 11 1 1

Common shares 3000 30 16 4 8

Retained surplus 2500 25 15 3 75

Total 10000 100 11 95

In this example, the weights in the calculation of the weighted average cost of funds are determined based on the book value. It is easy to obtain relevant information from the balance sheet using book value, but if the market of corporate bonds and ** is seriously detached from its book value, the weighted average cost of funds will be misestimated, and wrong financing decisions may be made as a result. Therefore, in the practice of financing decisions, the market value weight and the target value weight are often used as the weights of the weighted average cost of capital.

The market value weight refers to the weighted average cost of funds calculated by determining the weight of the current market of bonds and **. It can reflect the actual comprehensive cost of capital of the enterprise at present, which is conducive to financing decisions. However, due to the fact that the market is in constant flux, it is not easy to determine the market value weight.

In addition, the market value weights and book value weights reflect the past and current capital structure of the enterprise, and the comprehensive cost of funds determined on this basis may not be suitable for future-oriented financing decisions.

The target value weight refers to the weighting of the weighted average cost of funds by determining the weight of the target market ** of the future projected target market of bonds, **, etc. It reflects the desired capital structure and is suitable for companies to raise new capital. However, it is difficult to reasonably estimate the future target market for bonds, **, etc.

Therefore, the current market value is usually selected as the weight, and the weighted average cost of capital is calculated using the desired capital structure.

Weighted average cost of capital: The cost of capital of a company in proportion to the capital class.

It refers to the total cost of capital calculated by the weighted average of the capital cost of various long-term funds based on the proportion of various types of capital in the total capital of the enterprise. The calculation is more complex, weighted average cost of capital = (cost of common equity capital * percentage of equity capital in capital structure) + [cost of debt capital * (1-tax rate) * ratio of debt to capital structure].

Weighted average cost of capital ratio = interest rate on debt capital (1-tax rate) (debt capital total capital) + cost of equity capital ratio (equity capital total capital).

Capital cost ratio = risk-free rate of return + beta coefficient (market risk premium) The calculation of risk-free rate of return can be based on the annual yield of the longest-term treasury bonds traded on the Shanghai ** Exchange; The beta coefficient can be calculated by the reversion of the company's ** return to the return of the ** market index (Shanghai Composite Index) in the same period; Market risk premium = average annual return of China** - average annual return of government bonds.

After calculating the unit cost unit cost = (opening inventory cost balance amount + current inventory purchase cost amount) (opening inventory balance quantity + current inventory purchase quantity) (issuing cost amount = issuing quantity * unit cost closing balance cost = opening inventory cost amount + purchase inventory cost amount - issuing cost amount.

The sum of the various target capital ratios and individual cost of capital ratios.

Weighted average cost of capital = pre-tax cost of debt capital * (1 - income tax rate) * weight of debt capital cost + cost of equity capital * proportion of cost of equity capital.

Debt or equity cost of capital = value of long-term debt or **market value Total value of the enterprise, value of long-term debt, and its face value.

**Market Value Net Profit Equity Cost of Capital.

Cost of equity capital Risk-free rate + risk premium.

Risk premium Beta coefficient * (average risk** return rate - risk-free rate of return) total enterprise value = **market value + long-term debt value.

Cost Quantity Thank you for adopting!

1) Borrowing cost = 7 (1-25) 1-2 ) = 5 36 Bond cost = [14 9 (1-25 )]15 (1-3 )]6 49

Cost of common stock = 1 2 [10 (1-6 )]8 = 20 77 Cost of retained earnings = (1 2 10) + 8 = 20 .

2) The weighted average cost of capital = 5 36 10 100 + 6 49 15 100 + 20 77 65 100 + 20 10 100 = 17 01.

Analysis] This question mainly examines the combination of the relevant content of Chapters 7 and 8. The key to solving this question is to grasp the calculation of individual and weighted average cost of capital.