Calculate WACC by computing a weighted average of the estimated after-tax costs of capital sources used by the firm.

Steps in a WACC

• Step 1. Estimate capital structure and determine the weights of each component: wd, wp, we.

• Step 2. Estimate the opportunity cost of each of the sources of financing: kd, kp, ke, and adjust for the effects of taxes where appropriate.

• Step 3. Calculate WACC by computing a weighted average of the estimated after-tax costs of capital sources used by the firm.