Weighted Average Cost of Capital (WACC): A Beginner's Guide

The Weighted Average Cost of Capital (WACC) is the average rate a company expects to pay to finance its assets. It is calculated by weighting the cost of each capital component (equity and debt) by its proportion in the company's total capital structure. For business owners, WACC acts as the 'Hurdle Rate'—if a new project doesn't earn a return higher than the WACC, it is actually destroying value. Understanding your WACC helps you make smarter decisions about taking on debt, issuing stock, or expanding your operations.