WACC is the weighted average cost of capital. In a valuation model, it combines the required return on equity and the cost of debt using the weights of the corresponding financing sources. The choice of weights, tax effect and other components depends on the model; WACC is an estimate, not one unchanging characteristic of a company.
Illustrative calculation
If an educational model without a tax effect assigns 60% to equity with a 12% cost and 40% to debt with an 8% cost, WACC is 10.4%: 0.60 × 12% + 0.40 × 8%. These rates are hypothetical and do not describe the current market. The result changes with different weights or risks.
Matching the rate to the cash flow
WACC is not a loan interest rate or a promised return on shares. It is often used to discount cash flows for the entire business, but the currency, risk and type of cash flow must match the rate. Errors in the assumptions can materially change the valuation, so it is useful to show a range of scenarios rather than only one exact figure.
General financial concepts; not an individual recommendation under Russian jurisdiction.
Source reference retained: term-ifrs13-examples. Related links retained: /guides/discounted-cash-flow/, /tools/dcf-scenario/, /glossary/roic/. The 60% equity at 12%, 40% debt at 8%, 10.4% result, no-tax-effect assumption, hypothetical-rate, market, loan-rate, promised-share-return, discounting, currency, risk, cash-flow matching, scenario-range and assumption-error caveats are preserved.
Educational material is not individual investment, legal or tax advice.
