Lecture 2 (9/4/14)

Question 1

What is the equation for weighted average cost of capital (WACC)

Answer 1

WACC= K_d * W_d * (1-T) + K_e * W_e

K_d * W_d = cost of debt
K_e * W_e = cost of equity
K = cost of financing

Question 2

How do you caluculate the price of a bond?

Answer 2

=(PMT1/(1+c)^1) + (PMT2/(1+i)^2)