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Accounting Dictionary

Average Weighted Cost of Capital

This is the after tax cost of raising money to run your business.

For instance, a company sold $50,000 worth of stock and must pay 4% dividends. They borrowed $50,000 from the bank and must pay 8% interest after taking into account the fact that interest is a tax deduction. ½ the money cost them 4% and half cost 8% so they weighted average cost of capital is (4 +8)/ 2 or 6%.

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