Weighted average cost of capital

Description

The weighted average cost of capital is the rate that a company is expected to pay on average to all its security holders to finance its assets. It is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. In the case where the company is financed with only equity and debt, the average cost of capital is computed by the the total debt, the total shareholder’s equity, the cost of equity and the cost of debt.

Related formulas

Variables

WACCThe average cost of capital (dimensionless)
DThe total debt (dimensionless)
EThe total shareholder’s equity (dimensionless)
KdThe cost of debt (dimensionless)
KeThe cost of equity (dimensionless)