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Weighted Average Cost of Capital: the blended rate a company pays to finance its assets.
WACC = (E/V)·Re + (D/V)·Rd·(1 − Tc), where V = E + D. Debt gets the tax shield.
Interest is tax-deductible, so effective cost is Rd × (1 − Tc). Equity holders demand higher returns because they're paid last and bear more risk.
Most commonly CAPM: Re = Rf + β × (Market return − Rf). Alternatively, a dividend-discount model.
Market values — WACC reflects what today's investors demand, not historical accounting balances.
It's the discount rate for DCF valuation of a company's free cash flows, and the hurdle rate for corporate investment decisions.
Up to a point — cheap after-tax debt reduces the blended rate. Too much debt raises bankruptcy risk and both Re and Rd rise.
Results are estimates for educational purposes only and are not financial advice. Verify with a qualified professional before making decisions.
Last updated October 2026