Also called Weighted average cost of capital, Discount rate
WACC
Cost of equity and cost of debt blended by how much of each the company uses. This is the rate every future dollar is discounted at, and it is the single most leveraged input in the model.
Updated 2026-09-03
The weighted average cost of capital is the rate every future dollar is discounted at. It represents what the company's money costs: shareholders want a return for the risk they are taking, lenders want interest, and the WACC blends the two by how much of each the company uses.
WACC = (E ÷ V) × cost of equity + (D ÷ V) × cost of debt × (1 − tax rate)
E is market value of equity, D is debt, V is the two added together. Angie uses a 21 percent tax rate, and weights by NET debt so a cash-rich balance sheet is not treated as leverage.
Why it is the most leveraged input in the model
Because it is applied every year, and compounds. A one-point change in the discount rate barely touches year one and dominates the terminal value, which is most of the answer. Two companies with identical cash flows and different discount rates get very different valuations, and the gap widens the further out you look.
Both run on 2026-09-05. Apple's higher beta lifts its cost of equity by more than four points, which is why its discount factors fall away so much faster.
The two floors, and why they exist
Angie floors beta at 0.30 and the blended WACC at 6 percent. Both are admissions that the raw measurement was not usable. Trailing daily betas against a tech-led index come out implausibly low for defensive companies, and nobody discounts a listed equity at the risk-free rate. Separately, a heavily indebted business borrowing cheaply can blend down to a rate below what any equity should carry, which would barely discount its near-term cash and manufacture a discovery.
See also
- Cost of equity — The return shareholders demand for owning this particular company. Known as CAPM, the capital asset pricing model.
- Cost of debt — The implied interest rate the company actually pays. Applied after the tax shield in the WACC, because interest is tax-deductible and equity dividends are not.
- Discount factor — How much a dollar arriving in year t is worth today, adjusted to mid-year because cash arrives through the year rather than all on 31 December.
- Terminal value — Everything the business is worth beyond the projection horizon, set by Gordon growth or an exit multiple and then discounted back. It is usually the majority of the answer.
- Why interest rates move fair value — A higher safe interest rate makes future cash worth less today, so a cash-flow valuation lowers companies whose price rests on years of growth. With Treasuries near 5%, most of the biggest names read below their price.
Educational content, not investment advice. Angie explains how a valuation is built so you can judge it yourself. What you do with that is your call.
