[Verse 1]
Every company needs capital to grow and thrive
Debt and equity both help keep the business alive
But each source of funding carries its own price tag
We need to calculate the blend, no time to lag
The cost of debt is interest that we pay each year
But taxes give us shelter, make the burden clear
Take that rate and multiply by one minus tax
Now we've got the after-tax cost, those are the facts
[Chorus]
WACC is the weighted average way
Market values guide us every day
Debt times cost of debt plus equity's share
Times cost of equity, handle with care
Weight them by their market value size
WACC reveals the true cost of our prize
[Verse 2]
Equity holders want returns for taking risk
Dividends and capital gains are on their wish list
We can use the CAPM model to find their required rate
Risk-free rate plus beta times the market risk we calculate
Now we gather market values, not the book amount
What investors actually paid is what we count
Debt at current market price, equity at stock times shares
These proportions become weights that show who really cares
[Chorus]
WACC is the weighted average way
Market values guide us every day
Debt times cost of debt plus equity's share
Times cost of equity, handle with care
Weight them by their market value size
WACC reveals the true cost of our prize
[Bridge]
Formula flows like music in our minds
W-D times R-D times one minus T
Plus W-E times R-E combines
To give us WACC for all to see
Weight of debt times after-tax cost
Plus weight of equity, nothing gets lost
Market values make the weights precise
WACC becomes our discount device
[Chorus]
WACC is the weighted average way
Market values guide us every day
Debt times cost of debt plus equity's share
Times cost of equity, handle with care
Weight them by their market value size
WACC reveals the true cost of our prize
[Outro]
When investors fund your corporate dream
WACC shows what returns you need to scheme
Weighted average cost of capital's the key
To valuation done professionally