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What is the weighted average cost of capital, WACC? Discuss in details its financial importance and...

What is the weighted average cost of capital, WACC? Discuss in details its financial importance and value.

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The  weighted average cost of capital (WACC) is the average rate it costs the company to raise capital from debt and equity with respective weights. It is given as below:

WACC is very important in making financial decisions such as whether to accept an investment opportunity or reject. WACC is an imporatnat factor that determines the Net Present Value of the investment. It should reflect the riskiness in the cash flows of the investment. The more riskier the cash flows are higher the WACC.

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