How is the weighted cost of equity calculated for a company with a cost of equity of 14% and equity capital representing 67% of total capital?

To determine the weighted cost of equity, you multiply the cost of equity by the percentage of equity capital as part of the total capital structure. The formula for the weighted cost of equity is:

Weighted Cost of Equity = Cost of Equity × Proportion of Equity in Capital Structure.

In this scenario, the cost of equity is given as 14%, which can be expressed as a decimal (0.14), and the equity capital represents 67% of total capital (0.67 in decimal form).

Substituting these values into the formula gives:

Weighted Cost of Equity = 0.14 × 0.67 = 0.0938.

This calculation shows that the weighted cost of equity for the company is 0.0938, which is equivalent to 9.38%. Understanding this calculation is important for financial analysis and decision-making, especially when evaluating investment opportunities or performing company valuations. The result reflects how much of the company's capital is being financed through equity and at what cost, important for assessing overall capital costs and investment returns.