WACC (Weighted Average Cost of Capital)

Definition

The average rate of return a company needs to earn on its investments to satisfy both debt and equity holders, or the 'hurdle rate' for whether a project is worth it.

Example Usage

With a WACC of 8%, any project returning less than 8% should be rejected.

Origin

Developed in modern corporate finance theory; standard in MBA programs.

Fun Fact

WACC calculations involve subjective estimates of the cost of equity that can make or break investment decisions.

Source: Corporate Finance Theory

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