Weighted average cost of capital (WACC) is the average aftertax cost of a companyโs various capital sources, including common stock, preferred stock, bonds and any other longterm debt. By taking the weighted average, the WACC shows how much interest the company pays for every dollar it finances.
The internal rate of return (IRR), on the other hand, is the discount rate used in capital budgeting that makes the net present value (NPV) of all cash flows (both inflow and outflow) from a particular project equal to zero. It is used by companies to compare and decide between capital projects. For example, a company may evaluate an investment in a new plant versus expanding an existing plant based on the IRR of each project.
The primary difference between WACC and IRR is that where WACC is the expected average future costs of funds (from both debt and equity sources), IRR is an investment analysis technique used by companies to decide if a project should be undertaken. A close relationship exists between WACC and IRR, however, because together these concepts make up the decision for IRR calculations. In general, the IRR method indicates that a project whose IRR is greater than or equal to the firm's cost of capital should be accepted, and a project whose IRR is less than the firm's cost of capital should be rejected.

Which is a better measure for capital budgeting, IRR or NPV?
In capital budgeting, there are a number of different approaches that can be used to evaluate any given project, and each ... Read Full Answer >> 
Can working capital be depreciated?
Working capital as current assets cannot be depreciated the way longterm, fixed assets are. In accounting, depreciation ... Read Full Answer >> 
What does high working capital say about a company's financial prospects?
If a company has high working capital, it has more than enough liquid funds to meet its shortterm obligations. Working capital, ... Read Full Answer >> 
How can working capital affect a company's finances?
Working capital, or total current assets minus total current liabilities, can affect a company's longerterm investment effectiveness ... Read Full Answer >> 
What does low working capital say about a company's financial prospects?
When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >> 
Does unearned revenue affect working capital?
Unearned revenue, or deferred revenue, typically represents a company's current liability and affects its working capital ... Read Full Answer >>

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