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What is WACC? In business valuation, Discounted Cash Flow method (DCF) dominates the field. Under the entity method, payments to all investors, after all business taxes, are discounted using the Weighted Average Cost of Capital (WACC)1. The weighted average cost of capitals is a way to calculate the required rate of return on an entire firm; it incorporates debt, equity, and preferred shares of stock into required rate. These are the various ways that s firm can raise capital. It is important to incorporate this fact into the rate because firms do not raise all of their capital from one source. They often gather it from a combination of all these sources. Each method of raising capital has a different cost associated with it, and must be taken into account. This rate of return that the WACC finds can then be used in different models, such as the NPV model...

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