Question

In the weighted average cost of capital (WACC) equation, what symbol represents the cost of raising capital by issuing new stock?

a) R_s (subscript)
b) E (subscript)
c) S (subscript)
d) None of the above

Answer 1

In the weighted average cost of capital calculation, Rs symbolizes the cost of raising capital by issuing new stock, which is the expected return for equity investors.

Step-by-step explanation:

In the calculation of the weighted average cost of capital (WACC), the cost of raising capital by issuing new stock is typically represented by Rs. This stands for the cost of equity, which is the return that investors expect for investing in the company's equity. When a company issues new stock, it aims to raise capital without increasing debt, but this comes with the expectation of returns from the new shareholders, reflected in the WACC equation.