What are the advantages and disadvantages of wacc?

Answer 1

The Weighted Average Cost of Capital (WACC) provides a comprehensive measure of a company's cost of financing, integrating both equity and debt costs, which helps in assessing investment decisions. Its advantages include aiding in valuation, guiding capital budgeting, and reflecting the risk of a company's capital structure. However, WACC has disadvantages, such as its sensitivity to market conditions and assumptions, which can lead to inaccuracies if inputs are misestimated. Additionally, it may not adequately account for varying risks across different projects or divisions within a company.