What does WACC stand for in corporate finance?

WACC stands for Weighted Average Cost of Capital. This term is crucial in corporate finance as it represents the average rate of return a company is expected to pay its security holders to finance its assets. WACC takes into account all sources of capital, including equity, debt, and any other forms of financing, weighted according to their proportion in the overall capital structure.

The concept is important for several reasons. Firstly, it serves as a benchmark for evaluating investment opportunities; projects with expected returns higher than the WACC are generally deemed acceptable as they can create value for shareholders. Secondly, understanding WACC helps companies strategize their financing decisions, balancing the cost of equity and debt to minimize their overall capital cost. By maintaining a low WACC, a firm can enhance its valuation and investment attractiveness.

The other options presented do not accurately reflect established financial terminology related to capital or financing strategies. Therefore, the distinction provided by the correct answer is foundational for understanding corporate finance fundamentals.