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WACC
(Weighted Average Cost of Capital)
WACC (Weighted Average Cost of Capital) represents a firm's blended financing cost: the average rate it pays for debt (after-tax) and equity. Formula: (E/V × Re) + (D/V × Rd × (1-Tc)).
Used as the discount rate in DCF valuations, WACC determines hurdle rates for CAPEX projects. A 10% WACC means projects must earn >10% to add value. High D/E firms have lower WACC (tax shield) but higher bankruptcy risk. The SEC scrutinizes WACC assumptions in fairness opinions for M&A. Tech firms (low debt) often have higher WACC than utilities. Compare to ROIC to assess value creation.
Used as the discount rate in DCF valuations, WACC determines hurdle rates for CAPEX projects. A 10% WACC means projects must earn >10% to add value. High D/E firms have lower WACC (tax shield) but higher bankruptcy risk. The SEC scrutinizes WACC assumptions in fairness opinions for M&A. Tech firms (low debt) often have higher WACC than utilities. Compare to ROIC to assess value creation.