The WACC is used as the discount rate of future cash flows and the general principle is that the higher the WACC, the lower the business valuation. This is because paying higher returns on equity or debt would require more cash which leaves less available to grow the business. Cost of debt is basically the same as the annual interest rate which does not usually differ by much between credit providers but the required return on equity is a lot more subjective as some investors may require a higher return than others on the equity capital that they contribute.

CopyFinancial > The WACC is used as the discount rate of future cash flows and the general principle is that the higher the WACC, the lower the business valuation. This is because paying higher returns on equity or debt would require more cash which leaves less available to grow the business. Cost of debt is basically the same as the annual interest rate which does not usually differ by much between credit providers but the required return on equity is a lot more subjective as some investors may require a higher return than others on the equity capital that they contribute.