**Marginal Cost of Capital (MCC) Schedule** is a graph that relates the firm’s weighted average cost of each dollar of capital to the total amount of new capital raised

The WACC is the minimum rate of return allowable and

still meeting financial obligationts such as debt interest payments dividends etc Therefore the WACC averages the required returns from all long-term financing sources (Debt and Equity)

the WACC is based on cash flows which are after-tax By the same notion then the WACC should be calculated on an after-tax basis

## WACC Components

**DEBT**Advantages:

Disadvantages:taking on more debt = taking on more financial risk (more systematic risk) requiring higher cash flows

The firm's debt component is stated as k_{d} and since there is a tax benefit from interest payments then the after tax WACC component is k_{d}(1-T); where T is the tax rate

Equity

Advantages:

- no legal obligation to pay (depends on class of shares)Disavdantages:

- new equity dilutes current ownership share of profits and voting rights (control)buyout by another firmCost of new equity should be the adjusted cost for any underwriting fees terme flotation costs (F)

K_{e} = D_{1}/P_{0}(1-F) + g; where F = flotation costs D_{1} is dividends P_{0} is price of te stock and g is the growth rate

More to come (K preferred shares WACC equation EVA MCC MCC schedule and demonstration IOS schedule and demonstration MCC/IOS schedules)