Concept
Version 9
Created by Boundless
Differences Between Required Return and the Cost of Capital
WACC
While this image goes into a bit more detail on the derivation of the cost of equity and the cost of debt, the final three boxes on the right ultimately demonstrate the way in which required rates balance out into a WACC (one for debt, one for equity). Debt tends to be a lower rate because it is paid out first if a company goes bankrupt (i.e. lower risk). Equity is a bit higher risk (only paid out if there is capital remaining after debts are paid), and thus equity has a higher rate (and higher risk).
While this image goes into a bit more detail on the derivation of the cost of equity and the cost of debt, the final 3 boxes on the right ultimately demonstrate the way in which required rates balance out into a WACC (one for debt, one for equity).
Source
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"0020_-_WACC-2.png."
https://upload.wikimedia.org/wikipedia/commons/b/ba/0020_-_WACC-2.png
Wikipedia
CC BY-SA 3.0.