WACC (Weighted Average Cost of Capital), WARA (Weighted Average Required Rate of Return), and IRR (Internal Rate of Return) are financial metrics used in corporate finance and investment analysis.
Here’s an explanation of each and how they can be reconciled:
🔆 WACC (Weighted Average Cost of Capital):
WACC represents the average cost of financing a company’s operations through debt and equity. It’s a weighted average of the cost of debt and the cost of equity, taking into account the company’s capital structure.
🔅 WARA (Weighted Average Required Rate of Return):
WARA is the overall rate of return an investor requires based on prospective financial information (PFI), considering the weighted average of returns required on equity and debt. It’s similar to WACC but focuses on the required rate of return rather than the actual cost.
🔅 IRR (Internal Rate of Return):
IRR is the discount rate that makes a project’s net present value (NPV) zero, basis PFI. It’s the rate at which the present value of expected future cash flows equals the initial investment.
