Give me an example of how WACC can be used in a business?

When deciding how to fund a new project, the cost of funds and return of the project help managers quantify their options. Debt and equity are usually in the calculation of WACC and sometimes preferred stock. WACC is extremely useful to investors and senior level managers to see if future investments or purchases are worthwhile to undertake. The higher the WACC percentage the more risk the investment, the lower the WACC percentage the lower the risk investment. Since WACC is an increase to debt, it's important to ensure the additional debt payments can be paid in a timely manner and without sacrificing the daily cost of running the business.

For this question give the technical definition and an example either professionally or educationally of when you have measured it. WACC is the weighted average cost of capital and is a financial metric used to measure the total cost of all capital sources: preferred shares, common shares, and debt.

If you are new in accounting and finance career, you might get asked basic terminology questions and how its relevant to a business in the interview. The reason this is done, is to ensure the person understands the concept.