why the weighted average cost of equity wace matters
potential buyers who are considering acquiring a company might use the weighted average cost of equity to help them assign a value to the future cash flows of the target company the results of this formula can also be coupled with other indicators such as the after tax cost of debt to form an assessment as mentioned the weighted average cost of equity is commonly combined with the weighted average cost of debt to calculate a firm s weighted average cost of capital wacc as part of the wacc the wace is used within the company to better assess how its campaigns and capital intensive projects translate into the overall return on earnings for the shareholders as a stand alone metric the weighted average cost of equity tends to temper a company s issuance of new stock if it is attempting to raise more capital debt in the form of bonds tends to be a cheaper way of raising capital for most companies and it is easier for investors to calculate the capital costs of debt when doing balance sheet analysis 