WACC is the blended cost of all the money a company uses — both debt and equity. If a company is 40% debt (at 5% interest) and 60% equity (at 12% expected return), its WACC is roughly 0.4 × 5% × (1 - tax rate) + 0.6 × 12%. Debt gets a tax adjustment because interest payments are tax-deductible.
WACC is the hurdle rate for investment decisions. If a project earns returns above WACC, it creates value for shareholders. Below WACC, it destroys value. Every corporate finance team calculates WACC before approving major investments — it is the minimum acceptable return.
Typical WACC ranges: tech companies (8-12%) because of high equity costs; utilities (4-6%) because of stable cash flows and cheap debt. Apple's WACC is around 9%, while a startup might face 20%+. Lower WACC means cheaper financing and higher company valuation in DCF models.