Weighted Average Cost of Capital
Also written WACC · Weighted Average Cost of Capital (WACC)
The discount rate in a DCF, computed by taking the post-tax cost of debt and the cost of equity separately and weighting them by the debt and equity proportions of the capital structure.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Bottom-up approachSizing a market by taking the revenue of individual companies and aggregating it upward — accurate where companies disclose, blind where they do not.
- Churn RateThe percentage of customers who discontinue using a product or service over a given period — the metric that decides whether acquired customers are an asset or a leaking bucket.
- CLTV/CAC ratioCustomer Lifetime Value divided by Customer Acquisition Cost — how many rupees of customer revenue a start-up buys for every rupee it spends winning that customer.
- Cost approachValuing a business from its assets less its liabilities — by book value, by what it would cost to replace, or by what it would fetch if broken up and sold.
- Customer Lifetime ValueThe total revenue a start-up earns from one customer across the whole relationship — average purchase value multiplied by the average number of purchases that customer makes.
- Deal CompsRelative valuation using earnings based multiples — chiefly EV/EBITDA and EV/Sales — which the workbook also calls Transaction Comparables.
Where this is taught
- Series XIX-D · Chapter 11: Valuationintroduced here
- Series XIX-A · Chapter 11: Valuationintroduced here
Related terms
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