How this calculator works
Estimate a blended financing hurdle from common equity, debt and preferred equity, each with its own cost and funding amount. This broader capital-source model includes preferred financing separately from the two-source WACC page. Only the debt component receives the stated interest tax shield.
Formula
Capital cost = [E × ke + D × kd × (1 - T) + P × kp] / (E + D + P). The annual dollar capital charge is the weighted numerator.
Worked example
$600,000 common equity at 10%, $300,000 debt at 5% with a 20% tax shield and $100,000 preferred equity at 8% produce an $80,000 annual charge and 8% blended cost. With only $200,000 preferred equity at 7%, cost is 7%.
Advertisement
Frequently asked questions
Why are financing amounts needed?
Adding component percentages alone does not give a blended cost. Each rate must be weighted by its share of total financing.
Are preferred dividends tax deductible here?
No. The model applies the tax shield to debt interest only.
Can this set a project discount rate?
It can supply a starting hurdle when project risk and financing match the company. Projects with different risk need a suitable adjusted rate.