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Mohammed El-Sherbiny
Financial Consultant, Egypt
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Weighted Marginal Cost of Capital
🔥 Dear Friends, kindly, I need your support to get more knowledge about Weighted Marginal Cost of Capital. What is meant with that and what is the difference with WACC?
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Jaap de Jonge
Editor, Netherlands
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What is (Weighted) (Marginal) Cost of Capital Obviously, WEIGHTED Average Cost of Capital (WACC) and MARGINAL Cost of Capital both measure the Cost of Capital.
Capital is any money used to finance a business and/or its operations. There are many different sources (types) of capital: traditional debt or equity financing or owner financing, grants, gains on investment capital, retained earnings, accrual financing contracts and forward payment agreements on capital.
There is a cost associated with obtaining capital. The cost is NOT the same for each type! On top of that, the cost also changes over time.
That's why we have the Marginal Cost of XYZ: the cost associated with raising one extra dollar at a particular moment via any particular form of capital.
Likewise, the Weighted Marginal Cost of Capital (WMCC) is the WACC applicable to the next dollar of the total new financing.
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Mohammed El-Sherbiny
Financial Consultant, Egypt
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How to Calculate Weighted Marginal Cost of Capital @Jaap de Jonge (Editor): Dear sir, thank you for your support. I actually need a techniques and methods to calculate it.
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Jaap de Jonge
Editor, Netherlands
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How to Calculate WMCC Basically the way of calculating WMCC is the same as for calculating WACC, except that a TRUE Marginal Cost of Capital problem will include floatation costs and take into account breakpoints in the cost of capital.
Here is a series of 4 videos on calculating WMCC which is pretty extensive. Enjoy!
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