What is a WACC?



• WACC is the weighted average cost of capital of a company.

• WACC captures the cost of capital for the entire company given its capital structure and the underlying risk attached to the underlying cash flows.

• WACC is the minimum rate of return a company should earn given its capital structure.

• WACC = [Cost of debt * (% of debt * (1- Tax rate)] + [cost of equity * % of equity)]

• % of debt = Total Debt/ (Debt + Equity)

• % of Equity = Book value equity/ (Debt + Equity)


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