WACC Meaning and
Definition
-
WACC, an acronym for Weighted Average Cost of Capital, is a financial metric used to estimate the overall cost of capital of a company. It is a calculation that takes into account both the cost of debt and the cost of equity in a company's capital structure. WACC is an important tool for businesses as it represents the minimum rate of return that needs to be earned on new investments to maintain the value of the company.
The formula for determining WACC involves assigning weights to the various sources of financing, such as debt and equity, based on their proportion in the company's capital structure. The cost of each source, represented by the interest rate on debt or the required rate of return on equity, is then multiplied by its respective weight. The results are then summed to arrive at the WACC.
WACC is used by companies primarily in capital budgeting decisions and in evaluating potential investment opportunities. By comparing the expected return on an investment to the WACC, management can determine whether the investment will generate sufficient returns to cover the cost of capital. If the expected returns are higher than the WACC, then the investment is deemed favorable, as it contributes to the company's value. Conversely, if the expected returns are lower than the WACC, the investment may not be economically viable.
Overall, WACC is a crucial concept in finance as it helps businesses understand the hurdle rate they need to overcome in order to make worthwhile investments and maintain or increase shareholder value.
Common Misspellings for WACC
- 3acc
- 2acc
- qwacc
- wqacc
- ewacc
- weacc
- 3wacc
- w3acc
- 2wacc
- w2acc
- wzacc
- wazcc
- waxcc
- wacxc
- waccx
- waccv
- w acc
- wa cc
- wac c
Infographic
Add the infographic to your website:
