WACC is the weighted average cost of capital, and can be used to determine the company's discounted cash flow, (current value according to its estimated future cash flows). All sources of capital, including common stock, preferred stock, bonds and any other long-term debt, are included in a WACC calculation. A firm’s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk.
