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Weighted average cost of capital

• Abbreviated WACC. Reflects the expected average future cost of funds for the upcoming year; found by weighting the cost of each specific type of capital by its proportion in the firm's capital structure.

• The average cost of all capital used by a firm. In the context of valuing firms, if the capital is a mixture of debt and equity. The discount rate is called weighted average cost of capital.
WACC = (1 - tc) * Rd * D/(D+E) + Re * E/ (D+E)
Where tc is the corporate tax rate , Rd is the contractual interest rate on (new) debt, Re is the discount rate on equity, D and E are the market values of debt and equity respectively. The return of all projects accepted by the corporation must exceed the weighted average cost of capital (WACC) to create value for the shareholders.

• Expected return on a portfolio of all the firm's securities. Used as a hurdle rate for capital investment.

 
 

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Accelerated cost recovery system
Agency cost view
All in cost
Arithmetic average mean rate of return
Average
Average accounting return
Average across day measures
Average age of accounts receivable
Average age of inventory
Average collection period
Average cost of capital
Average dividend yield
Average high pe
Average life
Average low price
Average low price earnings
Average maturity
Average payment period
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Average pre tax profit margin
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Average rate of return
Average tax rate
Bankruptcy cost view
Break even analysis cost volume profit analysis
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Capital asset pricing model
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Change in net working capital
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Cost of funds
Cost of funds index
Cost of giving up a cash discount
Cost of goods sold
Cost of lease financing
Cost of limited partner capital
Cost of living adjustment
Cost of long term debt
Cost of new asset
Cost of preferred stock
Cost of retained earnings
Cost yield
Debt capital
Debt to capital ratio
Dedicated capital
Dollar cost averaging
Dollar weighted rate of return
Dow jones industrial average
Efficient capital market
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Equivalent annual cost
Exchange rate risk capital budgeting
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Gigo garbage in, garbage out in capital budgeting
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Pecking order view of capital structure
Perfect capital market
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Personal tax view of capital structure
Pie model of capital structure
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Pro forma capital structure analysis
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Static theory of capital structure
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Total capital
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Uniform net capital rule
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Venture capital
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Weighted spread
Working capital
Working capital management
Working capital ratio
Zero cost collar

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