How to Calculate the Weighted Average Cost of Capital

The weighted average cost of capital (WACC) is a calculation that takes into account the proportion of debt and equity in a company's capital structure, as well as the cost of each component. It is important because it provides insight into how much a company must earn to meet its financial obligations and create value for shareholders. By understanding the WACC, companies can make informed decisions about investments, financing, and capital budgeting. A higher WACC means that a company must generate higher returns on its investments to be profitable, while a lower WACC indicates that it may have more flexibility in pursuing growth opportunities. Check out this episode to learn more about how to calculate WACC and add this important concept to your skillset.

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