Glossary term
Weighted average cost of capital
Weighted average cost of capital combines the cost of equity and cost of debt based on the capital structure used in the model.
Plain meaning
What WACC means
Weighted average cost of capital, often shortened to WACC, is a blended rate. It reflects how much of the capital structure is funded by equity and how much is funded by debt.
Formula role
How OpenBook uses it
OpenBook calculators use WACC as an educational finance formula. A simplified WACC model usually weights the cost of equity and the after-tax cost of debt by their share of total capital.
When tax effects are included, the calculation depends on the selected tax-rate assumption and whether interest is treated as deductible in that model.
Common confusion
Why the inputs matter
WACC is not a universal discount rate. It depends on the capital structure, rate assumptions, tax assumption, and purpose of the calculation entered by the user.