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.
A fuller explanation of this one is still being written. The definition above is the short answer.
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.
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.
