Weighted Average Cost of Capital

The weighted average cost of capital [WACC] is the minimum return that a company must earn to cover its cost of capital. As the capital in a business is derived from a number of sources, each with a different ‘real cost’, the weighted average cost of capital is the overall return for the firm as a whole, and is used to determine the feasibility of investments. In addition, the WACC provides the most appropriate discount rate to use for discounting cash flows. See also Discounted Cash Flow and Net Present Value.