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Finance
Weighted Average Cost of Capital
The average rate a company expects to pay to finance its assets, weighted by how much debt and equity it uses.
WACC is the most important number in corporate finance. It is used in discounted cash flow valuations and capital budgeting. A lower WACC means the company can accept more projects and grow faster.
It's like the blended interest rate on a credit card that has both a cheap store card and an expensive bank card.
Real world: A company that is 70% funded by equity (expensive) and 30% by debt (cheaper) will have a WACC somewhere in the middle. Managers use this number as the minimum return they need on any new project.
💡 WACC is the hurdle rate every new investment must beat.