Weighted Average Cost of Capital
Capital Structure
Debt
Equity
Preferred
Total

Cost
Weight Total Cost
6.20% 40.00%
2.48%
12.40% 50.00%
6.20%
8.00% 10.00%
0.80%
100.00%
9.48%

The weighted average cost of capital represents the rate of return that a company must repay its creditors for using their fun while the net present value of a project uses the time value of money to analyze the profitability of a capital investment.
The NPV is calculated by discounting future cash flows to what their value is today and then using the total amount of discou future cash flows to calculate the net present value of the total investment.
The cost of capital is used in NPV analysis because the calculations to determine the net present value are based on the cost

The internal rate of return is the rate at which the present value of all future cash flow is equal to the initial investment. In ot
The cost of capital is used in IRR analysis because the way in which the IRR relates to the cost of capital determines whether o
If the IRR is greater than the cost of capital, then the project should be accepted
If IRR is less than the cost of capital, the project should be rejected.

reditors for using their funds. a capital investment. he total amount of discounted

lue are based on the cost of capital.

he initial investment. In other words, it is the rate at which an investment breaks even. pital determines whether or not a project should be accepted.