Valuation
WACC
Weighted average cost of capital is the blended return lenders and shareholders require.
A DCF is only as sober as its discount rate. WACC blends the cost of equity and the after-tax cost of debt, weighted by how the firm is financed. The cost of equity is often built from a risk-free rate, a market premium, and the stock's beta. The cost of debt comes from the yield the firm actually pays.
Using a too-low WACC makes almost every stock look cheap. Using last decade's rates in a higher-rate world does the same thing. Revisit the risk-free rate and beta before you trust an old spreadsheet. WACC is a firm-level rate: pair it with cash flows to the firm, not with dividends.
Formula
WACC = (E/V) × cost of equity + (D/V) × cost of debt × (1 − tax rate)
Live example
Apple Inc. (AAPL) last printed at $345.33 with a market cap of $5.04T. Beta on the row is 1.07. The latest session move is unavailable.
Related
Discounted Cash Flow (DCF) · Beta · Debt to Equity
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Questions
Can I use one WACC for every stock?
No. A utility and a biotech do not have the same cost of equity, and a net-cash firm is not financed like a leveraged buyout.
Does beta fully capture risk?
Beta captures how the stock has moved with the market. It misses dilution, financing risk, and risks that have not shown up in the price yet.