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Definition
Weighted average cost of capital blends the after-tax cost of debt and the cost of equity, each weighted by its proportion of total funding. Debt is usually cheaper (interest is tax-deductible) but adds risk; equity is dearer but flexible. WACC is the minimum return an investment must earn to create value.
In plain terms
It is the price of all the money in the business, added up. Projects that beat it build value; those that fall short destroy it.
Why it matters for your company
Use WACC as the hurdle when weighing whether to fund growth with debt. See net-of-tax cost of borrowing and return on borrowing.
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Read →Funding for UK limited companies
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