What is WACC an abbreviation for?

WACC stands for Weighted Average Cost of Capital, which is a critical financial metric used to evaluate a company's cost of financing and to determine investment valuation. This concept takes into account the proportionate weights of each component of a company's capital structure, including equity and debt, and calculates an average cost. The components are "weighted" based on their respective market values, providing a comprehensive measure that reflects the risk and expected return for each type of funding used by the company.

Understanding WACC is essential for decision-making processes, such as evaluating investment opportunities or capital projects. It represents the minimum return that a company must earn on its asset base to satisfy its stakeholders, including equity investors and debt holders. This metric is often used in financial modeling and valuation techniques like Discounted Cash Flow (DCF) analysis to assess whether an investment is likely to generate value exceeding its cost.

In contrast, the other options provided do not accurately reflect the established terminology used in finance for this metric, which contributes to the clarity and understanding of capital management practices.