Weighted average cost of capital

• Abbreviated WACC. Reflects the expected average future cost of funds for the upcoming year; found by weighting the cost of each specific type of capital by its proportion in the firm's capital structure.

• The average cost of all capital used by a firm. In the context of valuing firms, if the capital is a mixture of debt and equity. The discount rate is called weighted average cost of capital.
WACC = (1 - tc) * Rd * D/(D+E) + Re * E/ (D+E)
Where tc is the corporate tax rate , Rd is the contractual interest rate on (new) debt, Re is the discount rate on equity, D and E are the market values of debt and equity respectively. The return of all projects accepted by the corporation must exceed the weighted average cost of capital (WACC) to create value for the shareholders.

• Expected return on a portfolio of all the firm's securities. Used as a hurdle rate for capital investment.


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 Embedded terms in definition
 Average cost of capital
Capital structure
Cost of capital
Cost of funds
Discount rate
Expected return
Hurdle rate
Interest rate
Market value
Weighted average
 Related Terms
Accelerated cost recovery system
Agency cost view
All in cost
Arithmetic average mean rate of return
Average accounting return
Average across day measures
Average age of accounts receivable
Average age of inventory
Average collection period
Average cost of capital
Average dividend yield
Average high pe
Average life
Average low price
Average low price earnings
Average maturity
Average payment period
Average percent payout
Average pre tax profit margin
Average price
Average price earning ratio
Average profit margin
Average rate of return
Average tax rate
Bankruptcy cost view
Break even analysis cost volume profit analysis
Capital account
Capital adequacy
Capital allocation decision
Capital appreciation
Capital asset
Capital asset pricing model
Capital budget
Capital budgeting
Capital cost allowance
Capital expenditure
Capital flight
Capital gain
Capital gains yield
Capital impairment rule
Capital lease
Capital loss
Capital market
Capital market efficiency
Capital market imperfections view
Capital market line
Capital rationing
Capital stock
Capital structure
Capital surplus
Change in net working capital
Complete capital market
Cost basis
Cost benefit ratio
Cost company arrangement
Cost of a new issue of common stock
Cost of capital
Cost of carry
Cost of common equity
Cost of debt
Cost of equity
Cost of funds
Cost of funds index
Cost of giving up a cash discount
Cost of goods sold
Cost of lease financing
Cost of limited partner capital
Cost of living adjustment
Cost of long term debt
Cost of new asset
Cost of preferred stock
Cost of retained earnings
Cost yield
Debt capital
Debt to capital ratio
Dedicated capital
Dollar cost averaging
Dollar weighted rate of return
Dow jones industrial average
Efficient capital market
Equity capital
Equivalent annual cost
Exchange rate risk capital budgeting
Financial or capital lease
Fixed cost
Gigo garbage in, garbage out in capital budgeting
Hard capital rationing
Human capital
Incremental cost of a new asset
Installation cost
Installed cost of new asset
Invested capital
Issued share capital
Legal capital
Marginal cost of capital
Marginal cost of capital schedule
Market value weighted index
Moving average
Net financing cost
Net working capital
Net working capital recapture
Nondiversifiability of human capital
Opportunity cost
Opportunity cost of capital
Optimal capital structure
Other capital
Outstanding share capital
Pecking order view of capital structure
Perfect capital market
Perfect market view of capital structure
Personal tax view of capital structure
Pie model of capital structure
Planned capital expenditure program
Potential average dividend yield
Pro forma capital structure analysis
Product cost
Real capital
Real options capital budgeting
Regulatory capital
Replacement cost
Risk capital budgeting
Shortage cost
Simple moving average
Soft capital rationing
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Static theory of capital structure
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Time weighted rate of return
Total capital
Total cost of inventory
True interest cost
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Venture capital
Weighted average
Weighted average coupon
Weighted average life
Weighted average maturity
Weighted average portfolio yield
Weighted average remaining maturity
Weighted spread
Working capital
Working capital management
Working capital ratio
Zero cost collar

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