Weighted Average Cost of Equity (WACE)

Weighted Average Cost of Equity (WACE)

A company’s Weighted Average Cost of Equity average weights its sources of equity: common stock, preferred stock, retained earnings. It leads to a more precise calculation of the equity element of its overall Weighted Average Cost of Capital (cf.). The cost of common equity can be calculated using the Capital Asset Pricing Model; the cost of preferred stock can be gleaned from its contractual dividend obligations; the cost of retained earnings is an opportunity cost, a proxy for expected return on investment.

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