The weighted average cost of capital, also known as composite cost of capital, is a quantifiable unit for it. It also explains the expenses of ordinary stock, preferred stock, and debt as components. Each of these elements is given a weight based on the interest rate and other profits and losses connected with it. It compares the average cost of all capital raised to the cost of each new capital. To calculate this, first compute the weighted average cost of capital, which is the sum of the weights of all other expenses.

The formula is given as:

WACC= Wd (cost of debt) + Ws (cost of stock/RE) + Wp (cost of pf. Stock)

In this case, the cost of debt is determined first, and it is used to compute the cost of capital, as well as other cost weights. After that, each individual component’s weight is added, and the final composite cost is produced.