What is WACC and how is it used in Real Estate?

Question

Accepted Answer

WACC stands for Weighted Average Cost of Capital and is used to determine the minimum return a company must earn on their investments to satisfy their shareholders and debt holders.

WACC is calculated by taking the weighted average of the cost of equity and the cost of debt, with each component weighted by its respective proportion in the company's capital structure.
In Real Estate, WACC is used to evaluate the feasibility of real estate projects by comparing the expected return on investment to the WACC.
A lower WACC indicates that the project is less risky and more likely to generate higher returns for investors.
Conversely, a higher WACC suggests higher risk and may make the project less attractive to investors.

What is WACC and how is it used in Real Estate?

Top Gallagher & Mohan Financial Analyst interview questions & answers

Popular interview questions of Financial Analyst