Glossary
Weighted average cost of capital (WACC)
The blended return a company’s lenders and shareholders require, used as the discount rate in a DCF.
WACC weights the cost of equity and the after-tax cost of debt by their share of the company’s capital. The cost of equity is commonly estimated with the capital asset pricing model, with a premium for size or company-specific risk.
For early-stage private companies the formula helps less, because there is little debt and no observable beta. Practitioners often use a venture-style discount rate of 20% or more instead.
In Hebrides
The Valuation Suite shows the discount rate with the other DCF inputs, and lays out the arithmetic step by step.
Valuation Suite