Complex Financial Structures
The weighted average cost of capital (WACC) is the average rate of return a company is expected to pay its security holders to finance its assets. This measure considers the relative weights of each component of the capital structure, including equity, debt, and preferred stock, reflecting the overall risk of the business. WACC is crucial in discounted cash flow valuation because it serves as the discount rate used to determine the present value of future cash flows.
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