The weighted average cost of capital (WACC) is the average rate that a business pays to finance its assets.
For example, a business funded by $300,000 in bank debt at 7% after-tax and $700,000 in equity expecting a 12% return has a WACC of (0.30 × 7%) + (0.70 × 12%) = 10.5%. Any project it pursues must generate at least a 10.5% return to create shareholder value.
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