Weighted Average Cost Of Capital (WACC)

WACC = (E * R_e)/(E+D) + (D * R_d * (1-t))/(E+D)

E: market value of the firm's equity
R_e: cost of equity
D: market value of the firm's debt
R_d: cost of debt
t: corporate tax rate

• If you have several capital structure plans, the plan with lowest WACC maximizes the firm's stock price and thus reflects the optimal capital structure.