[Verse 1]
When CFOs need their financing blueprint
They blend the costs of debt and equity's grip
Market values weigh the portions true
Not book amounts from statements overdue
Tax shields rescue interest payments paid
While equity costs cannot be tax-delayed
[Chorus]
WACC combines what creditors demand
With shareholder returns across the land
Weight by market value, not the books
Tax deductible interest gets second looks
Multiply and add to find the rate
That hurdles every project at the gate
[Verse 2]
Debt proportion times its after-tax expense
Plus equity weight times what investors sense
They need for bearing residual risk alone
No tax relief for dividends they own
Beta amplifies the market's swing
While risk-free rates anchor everything
[Chorus]
WACC combines what creditors demand
With shareholder returns across the land
Weight by market value, not the books
Tax deductible interest gets second looks
Multiply and add to find the rate
That hurdles every project at the gate
[Bridge]
Capital structure shifts the weights around
Optimal mix keeps financing costs down
Investment bankers calculate the blend
Where marginal costs and benefits transcend
[Verse 3]
CAPM builds the equity component's price
Risk premium scaled by beta's dice
While bond yields signal debt cost before
Tax savings slice the burden to the core
Weighted average tells the true expense
Of capital that drives the firm's defense
[Chorus]
WACC combines what creditors demand
With shareholder returns across the land
Weight by market value, not the books
Tax deductible interest gets second looks
Multiply and add to find the rate
That hurdles every project at the gate
[Outro]
Every dollar raised must clear this bar
WACC reveals what financing costs are