The Weighted Average Cost of Capital (WACC) is the average of the costs of all sources of financing used by a firm. By calculating WACC, we can see how much interest the company has to pay for every dollar it finances. A firm's WACC is the firm’s overall required return. It is considered the appropriate discount rate to use for cash flows with risk that is similar to that of the firm. A firm’s WACC is computed using the formula: