 # What Is Composite Cost Of Capital? Explain The Process To Compute It?

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.

Composite cost of capital is a company’s cost to finance its business, determined by, and also referred to as “weighted average cost of capital” or WACC.

The calculation involves multiplying the cost of each capital component by its proportional weight and taking the sum of the results. A company’s debt and equity, or its capital structure, typically includes common stock, preferred stock, bonds, and any other long-term debt.

A high composite cost of capital indicates that a company has high borrowing costs; a low composite cost of capital implies lower borrowing costs.