Appendix - Commission Decision of 8 May 2012 on State aid SA.22668 (C 8/08 (ex NN 4/08)) (notified under document C(2012) 3025) (Only the Spanish text is authentic) (Text with EEA relevance) (2013/126/EU)

In order to finance a project, investors need to invest some capital. Such capital has a cost. This is the cost of capital.

Typically, there are 2 broad sources of capital:

Equity capital (E)
Financial capital/debt) (D)

The sum of equity capital and debt capital gives us the total capital (C), expressed in EUR. Each of these 2 sources of capital has a certain cost. We note:

K_e the cost of equity capital, expressed in %;
K_d the cost of financial capital (debt), expressed in %.

The total cost of capital is therefore the weighted average cost of capital (WACC), taking into account the proportion of equity capital and the proportion of debt capital. We have therefore:

WACC = K_{e} \frac{E}{C} + K_{d} \frac{D}{C}

Note also that K_d and K_e are the expected cost of financial capital and of equity capital, and not the historical cost.

Taking into account the tax advantages of debt financing, and assuming T is the tax rate applicable to CDL, we have:

WACC = K_{e} \frac{E}{C} + K_{d} \frac{D}{C} (1 – T)

In the particular case of CDL, no mention of debt is made in the 2000 business plan. Since the project is fully financed with equity capital we have the following:

WACC = K_e