It is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation.
In the formula for WACC, r(E) is the cost of equity i.e. the required rate of return on common stock of the company. It is the minimum rate of return which a company must earn to keep its common stock price from falling. In the WACC formula, r(D) × (1 – t) represents the after-tax cost of debt i.e. the after-tax rate of return which the debt-holders need to earn till the maturity of the debt. Cost of debt of a company is based on the yield to maturity of the relevant instruments. 0 0 0 0. Weighted-Average Cost of Capital (WACC) is the average of debt and equity capital costs that all publicly traded companies with debt and equity stakeholders incur as a cost of operating. Below we provide the details behind our WACC calculations. The formula is below. Details follow. Weighted average cost of capital (WACC) is the average after-tax cost of a company’s various capital sources, including common stock, preferred stock, bonds and any other long-term debt. A company has two primary sources of financing-debt and equity-and, in simple terms, WACC is the average cost of raising that money. When calculating a firm's WACC, the first step is to determine what proportion of a firm is financed by equity and what proportion is financed by debt by entering the appropriate values into the and components of the equation. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. The WACC is commonly referred to as the firm’s cost of capital. Importantly, it is dictated by the external market and not by management. The WACC represents the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. The weighted average cost of capital (WACC) is used in finance to measure a firm's cost of capital. It has been used by many firms in the past as a discount rate for financed projects, since the cost of the financing seems like a logical price tag to put on it.  WACC is the average of the costs of these types of financing, each of which is weighted by its proportionate use in a given situation. By taking a weighted average in this way, we can determine how much interest a company owes for each dollar it finances. A firm's WACC is the overall required return for a firm. Because of this, company directors will often use WACC internally in order to make decisions, like determining the economic feasibility of mergers and other expansionary opportunities. Since WACC Weighted Average Cost of Capital is the required rate of return used to make important decisions regarding a firm’s investments, it is important to estimate the firms cost of capital accurately. We use the WACC Weighted Average Cost of Capital to approve or reject potential projects. Weighted Average Cost of Capital (WACC) is the average cost to a company of the funds it has invested in the assets of the company. This is composed of a possible combination of debt, preferred shares, common shares and retained earnings. All components of the cost of capital are determined at the current market rates. Weighted Average Cost of Capital. Weighted average cost of capital (WACC) is the average of the minimum after-tax required rate of return which a company must earn for all of its security holders (i.e. common stock-holders, preferred stock-holders and debt-holders). In the WACC formula, r(D) × (1 – t) represents the after-tax cost of debt i.e. the after-tax rate of return which the debt-holders need to earn till the maturity of the debt. Cost of debt of a company is based on the yield to maturity of the relevant instruments. Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. A firm's WACC is the overall required return for a firm. Because of this, company directors will often use WACC internally in order to make decisions, like determining the economic feasibility of mergers and other expansionary opportunities.
http://accountingexplained.com/misc/corporate-finance/wacc https://www.newconstructs.com/wacc-definition-and-formula/ http://www.investopedia.com/ask/answers/063014/what-formula-calculating-weighted-average-cost-capital-wacc.asp https://en.wikipedia.org/wiki/Weighted_average_cost_of_capital http://www.wallstreetoasis.com/faqs/what-is-wacc-or-the-weighted-average-cost-of-capital http://www.investopedia.com/terms/w/wacc.asp http://www.ultimatecalculators.com/weighted_average_cost_of_capital_WACC_calculator.html http://accountingexplained.com/misc/corporate-finance/wacc http://www.investopedia.com/terms/w/wacc.asp
what is average wacc