please explain WACC in simple terms and what are some of its uses?

Expert Solution

Weighted average cost of capital is overall cost of various financing methods like equity financing and debt financing into the overall capital structure after assignment of a particular weights to them.

weighted average cost of capital is calculated after ascertainment of weights of debt capital and equity capital and multiplying them with their respective cost of equity and cost of debt in order to arrive at a weighted average cost of capital.

Uses of weighted average cost of capital are as follows-

A) it is used to determine the discount rate which is used in discounted cash flow valuation model.

B) it is also used to calculate various net present values and internal rate of return in order to to discount them and make a decision.

C) This is always compared with rate of return and when it is higher than cost of capital, it means that the project should be accepted..

D) it is used for investment related decisions and future projections.

jeff jeffy answered 1 year ago

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please explain WACC in simple terms and what are some of its uses?

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