WACC (Weighted Average Capital Cost) shows cost of capital when capital is consisted of both equity and debt capital. So WACC simply calculates the weighted average between equity cost and debt cost.
WACC is used in many financial calculations as well in DCF firm’s valuation as discount rate. Normally WACC is between 7% and 10%, however, for some case may broke these boundaries. The higher WACC shows higher risk and return.
Main parts in WACC:
Maybe WACC formula looks simple, but in reality WACC is very sensitive to the value of DCF and little mistake in WACC calculation may have dramatic impact to the result. There are many nuances that are important for WACC and it is not very surprising that different analysts are getting different WACC for the same company.
Read what others say about WACC:
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