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What weight would be used for a bank loan in the WACC computation?

Accounting Financial Reporting Financial Management Economics
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Question added by Frank Mwansa , ACCOUNTING LECTURER , FREELANCER
Date Posted: 2016/04/29
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Frank Mwansa
by Frank Mwansa , ACCOUNTING LECTURER , FREELANCER

Bank loans do not have market values in the same way as debenture. All we can do in this case is to take the book value of the as an approximation of market value.

Tamer Elbeshbishy
by Tamer Elbeshbishy , Financial and Administration Manager , Al Muzun Holding Group

WACC is computed to measure the cost of capital i.e. cost of money should be used to fund some project(s)

 

Bank Loan is one of the capital resources that we should measure before using it in the funding the project.

The cost of Loan = its weight related to total Equity multiply by the interest rate  to get the WACC

 

Thank You

 

 

 

 

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