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hi john, is cost of capital, a rate of return required to compensate to investors ?
then what is it mean by WACC ? can i understand it as the rate of return required to compensate to both debt holders and equity holders ?
then what is the difference between cost of capital and WACC ?… is it the same terminology ?
The cost of capital is not the return required to compensate investors. The returns required by investors are pre-tax. The cost to the company is after-tax relief on any debt borrowing.
The WACC is the overall cost of borrowing (from equity and debt) to the company. WACC stands for weighted average cost of capital – it is the cost of capital!!
Again, please watch my free lectures on this (and if necessary the relevant Paper FM (old paper F9) lectures as well. I spend a lot of time explaining and calculating the WACC, and I obviously am not going to type out all my lectures here 🙂
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