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InvestHub.com's
Finance Dictionary and Glossary of Investment Terms

Weighted Average Cost of Capital - WACC  

Definition 1.

A calculation of a firm's cost of capital that weights each category of capital proportionately. Included in the WACC calculation are all capital sources including: common stock, preferred stock, bonds, and any other long term debt.WACC is calculated by multiplying the cost of each capital component by its proportional weighting and then summing:Where:Re = cost of equityRd = cost of debtE = the market value of the firm's equityD = the market value of the firm's debtV = E + DE/V = percentage of financing that is equityD/V = percentage of financing that is debtTc = the corporate tax rate
 
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