#cfa-level-1 #corporate-finance #reading-36-cost-of-capital
The most common way to estimate the average risk required rate of return is to calculate the marginal cost of each of the various sources of capital and then calculate a weighted average of these costs. This weighted average is referred to as the weighted average cost of capital (WACC).
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2. COST OF CAPITALn the cost of capital for the entire company (later we will address how to adjust that for specific projects). The cost of capital of a company is the required rate of return that investors demand for the average-risk investment of a company. <span>The most common way to estimate this required rate of return is to calculate the marginal cost of each of the various sources of capital and then calculate a weighted average of these costs. This weighted average is referred to as the weighted average cost of capital (WACC). The WACC is also referred to as the marginal cost of capital (MCC) because it is the cost that a company incurs for additional capital. The weights in this weighted average are the prop Summary
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