Weighted average cost of capital (WACC)

This is a measure of the cost of capital which reflects the differing costs of different types of funds.

To calculate the WACC, the required rate of return of each source of capital (such as stocks, bonds and other debt) is weighted in proportion to the share each source of capital contributes to the company’s overall capital structure. The WACC is then used as a minimum rate of return for evaluating a capital project or investment.

WACC is a term normally used in financial management.

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