WACC, or Weighted Average Cost of Capital, is the average rate of return a company is expected to pay its security holders to finance its assets. It reflects the overall cost of capital for a firm, taking into account the proportionate weight of each component of capital, including equity and debt. Understanding WACC is crucial for discounted cash flow valuation, as it serves as the discount rate when estimating the present value of future cash flows generated by a business.
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