🔴 3 Minutes! Weighted Average Cost of Capital or WACC Explained (Quickest Overview)

Yes! It's the interest on your loan. So if the interest rate is 5%, then your cost of capital is also 5%. But if your capital comes from investors instead of a bank loan, does this have a cost?

Yes! It's the expected return of your investors. If investors are expecting a 10% average return by investing with you, then your cost of capital is 10%. It's called a "weighted" average because it gives more "weight" or importance to either your borrowed capital or your investors' money, whichever is greater. Now here comes our problem...
What if part of your capital comes from bank borrowing at 5%, and another part of your capital comes from investors expecting 10%?

Is your cost of capital 5% like the bank loan or 10% like the investors' expected return?
Of course, it's something in between... but not exactly in between because you might have more of one than the other.

[TOMcatSUD]

Then why do professors make things soooo complicated ??? you are making things so simple! Thanks :)

[richardsilat]

Finally someone who has the merit to clearly explain the jargon. This saves us time, a luxury we don't always have these days. Thanks

[lipercastro]

Holy cr*p! Did I just (finally) understand WACC?? You're really good at this, thanks!

[ayesha]

Reading lecture notes or books making me sleepy but these 2 min is waking me up! It's so simple and clearly detailed.

[YEAHBOY]

Summarised my 2 hour lecture in 2 minutes cheers :D

[marcelllnunes]

I can't believe it is so simple and people make it so difficult for no reason. Thank you so much for the explanation!

[vwright]

You are awesome. I watched your videos when I had my accounting degree study 8 years ago- watching it again now when doing my CPA study!

[moonwalker]

there will be a time when professors will just play YouTube videos in class

[henryelf]

what you explain in 3 minutes is so much clearer that what my professor can teach is 3 hours.

[lucasmanuel]

this is awesome! I'm doing an MBA in Argentina and this is exactly what I was looking for... you are a hero!

[pujachalamalasetty]

omg ...u helped me a lot by making concept very simple

[idonthavetimethinkfancyn]

BETTER THAN INVESTOPEDIA'S EXPLANATION, GEEZ. THANK YOU. YOU ARE A REAL GENIUS.

[byrondito]

This is so freaking awesome dude. Thanks, you made it so simple.

[TealLynn]

finally understand what these d v and rc letters mean. Didn't realize it was that simple thank you!!!

[jacobhornak]

Wow thanks! Saving my butt on this final

[wafic]

This video is helping students 10 years later! everything is so clear now thank you :)

[pranali]

omg..so simple explanation.. totally loved it..great n thanks a

[stefanistephen]

Thanks a lot; this video made it so easy!

[miguelmarquex]

Really fun and easy to learn. Awesome video! Keep it up

[asutosbaral]

Really Short & simple, to the point!