The calculation of cost of capital has several important “quirks” that are important to an acceptabl

The calculation of cost of capital has several important “quirks” that are important to an acceptable calculation and evaluation of the cost of capital. Two of the most important are adjustments to the cost of debt based on the firm’s tax rate and the effect of growth on the cost of equity. To that end, it is important for you to appreciate where growth is used in the component costs of capital formulas and how they affect the overall cost of capital.Post an explanation of what would happen to a firm if the WACC calculation uses an estimate of growth estimated to be 4% instead of the actual rate of 8%. What would be the major effect on the firm seeking to obtain new capital given that mistaken estimate of growth?Review the student posts and their answers for effects of mistaken estimates for growth. Which do you think was the most important effect of over and underestimating growth. Do you agree with the effects; explain why or why not?

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