Weighted Average Cost of Capital, usually the abbreviation WACC is used. It is a term that refers to the opportunity costs of capital, or the average price at which the enterprise uses the capital provided. It consists of the cost of foreign capital and the cost of equity. WACC is expressed in the interest rate or in discount rate.
- rd is the cost of foreign capital (interest)
- t is the tax rate on corporate income
- D (Debt) is a foreign capital
- C is the total long-term capital invested
- re is the cost of own (share) capital (equity) - expected return on equity
- E is the Equity
Use of the WACC in practice: The indicator is used to determine the opportunity costs. It is part of the series of indicators, e.g. EVA.