Average Cost of Capital is the weighted average of the component cost of debt, preferred stock, and common equity. This equation represents the average amount of each dollar that the firm uses to purchase assets and what the firm needs to earn on its investments in order to maintain its current level of wealth.

Input Variables:

S - Market Value of the Firm's Equity

B - Market Value of the Firm's Debt

R_S - Cost of Equity

R_B- Cost of Debt

t_C- Corporate Tax Rate

Output for Formula:

Returns the  Average Cost of Capital

Notes

Average cost of capital is usually referred to as the weighted average cost of capital because it weighs the cost of equity and the cost of debt