Posts Tagged → Cost of Capital

What is the best way to measure the weighted average cost of capital and why is it important?

The WACC is the average rate at which a company can expect to finance its business from both equity and debt. This means that it represents the average overall return that both shareholders and debt holders demand to provide the capital the company needs to grow and operate. When using the Discounted Cash Flow (DCF) modelling technique, the WACC is often used as the discount rate to calculate the net present value of a business. To calculate the WACC, the cost of each capital source, such as debt, preferred shares, and common shares, is weighted by its percentage of total capital before they are added together to create an overall weighted average.

The Weighted Average Cost of Capital (WACC) is a crucial financial metric that investors use to determine the value of a company’s combined pool of capital, debt and equity. TABLE OF CONTENTS: The Weighted Average Cost of Capital explained. The WACC is the average rate at which a company can expect to finance its business… Continue reading →