The cost of capital method measures the weighted average debt and equity fundraising value and is an overall amount of three different calculations – debt weighing multiplied by debt costs, preference share weighing multiplied by preferential equity, and equity weighting multiplied by equitable costs. It is seen as,
Cost of Capital = Weightage of Debt * Cost of Debt + Weightage of Preference Shares * Cost of Preference Share + Weightage of Equity * Cost of Equity