Companies often compute what is known as their weighted average cost of capital for use as a discount rate for project cash flows. Companies can be finance with debt or equity and typically use some combination of both.

The WACC reflects the cost of the debt financing (the interest rate) and the cost of the equity (the return demanded by shareholders) weighted appropriately for the mix of financing. The WACC will vary by company because both the cost of the debt and the cost of the equity depend on a company’s individual circumstances.