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It is the average rate a company pays to finance its assets, combining the cost of debt and equity, weighted by their proportion in the firm’s capital structure
Weighted Average Cost of Capital is commonly referred to as WACC.
WACC is the cost a company is required to pay to raise capital through debt or Equity.
If a company raises funds in the form of debt, the interest portion becomes the cost of debt. If a company raises funds by issuing Equity, the return expected by shareholders becomes the cost of equity.
To derive WACC, a company needs to proportionately calculate the costs based on the mode of raising capital.
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