Day 1

What does WACC stand for, and why is it important?
Why is the cost of debt multiplied by (1−T) in the WACC formula?
What happens to WACC if a firm has no debt?
Are market or book values used when calculating WACC? Why?
In simple terms, what is the difference between ‘cost of debt’ and ‘cost of equity’?

Weighted average cost of capital

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.[1]

en.wikipedia.org