Weighted average cost of capital (WACC)

Weighted Average Cost of Capital (WACC) is the average rate a company pays to finance its operations through a mix of debt (loans) and equity (investments from shareholders). It reflects the cost of raising money from these sources, weighted by their proportion in the overall capital structure. WACC is crucial for decision-making, as it helps determine if an investment will generate enough returns to justify its risks. Generally, a lower WACC indicates a more attractive investment opportunity, as it suggests the company can borrow or raise funds at a lower cost.