Weighted average cost of capital (WACC) definition

Weighted Average Cost of Capital (WACC) is the weighted average of the costs of all debt, equity and other financing sources of the business. WACC is calculated using current market rates.

For example, a company has:
$100,000 in short term debt at 7% interest,
$500,000 in long term debt at 6% annual interest and
$1,000,000 in preferred convertible equity at 8% interest.

The calculation is:
(($100,000 x .07) + ($500,000 x .06) + ($1,000,000 x .08)) / ($100,000 + $500,000 + $1,000,000)
which is ($7,000 + $35,000 + $80,000) / $1,600,000, yielding a
weighted average interest rate cost of capital of 7.625%.