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web3glossaryweighted average cost of capital
Weighted Average Cost of Capital

Summary

Weighted Average Cost of Capital (WACC) is the average rate of return a company is expected to pay its security holders to finance its assets.

Detailed Description

WACC is calculated by multiplying the cost of each capital component (equity, debt, etc.) by its respective weight, which reflects the proportion of each source of capital in the overall capital structure. It represents the minimum return that a company must earn on its asset base to satisfy its investors, including bondholders, equity investors, and other forms of capital.

Category
Finance
Synonyms
Average Cost of Capital
Cost of Capital
WACC

Impact Details

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Corporate Financial Analysis

Companies use WACC to assess the feasibility of investment projects and to perform financial health checks.

Industries:

Finance
Investment
Merger and Acquisition Valuation

WACC is used to determine the appropriate discount rate when valuing a target company during mergers and acquisitions.

Industries:

Corporate Development
Investment Banking
Budgeting Decisions

Businesses implement WACC in budgeting to ensure that projected project returns exceed this cost.

Industries:

Corporate Finance
Business Management

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