DEFINITION of 'Weighted Average Cost of Equity  WACE'
A way to calculate the cost of a company's equity that gives different weight to different aspects of the equities. Instead of lumping retained earnings, common stock, and preferred stock together, WACE provides a more accurate idea of a companies total cost of equity. Determining an accurate cost of equity for a firm is integral for the firm to be able to calculate its cost of capital.
In turn, an accurate measure of the cost of capital is essential when a firm is trying to decide if a future project will be profitable or not.
BREAKING DOWN 'Weighted Average Cost of Equity  WACE'
Here is an example of how to calculate the WACE:
First, calculate the cost of new common stock, the cost of preferred stock and the cost of retained earnings. Lets assume we have already done this and the cost of common stock, preferred stock and retained earnings are 24%, 10% and 20% respectively.
Now, you must calculate the portion of total equity that is occupied by each form of equity. Again, lets assume this is 50%, 25% and 25%, for common stock, preferred stock and retained earnings respectively.
Finally, you multiply the cost of each form of equity by its respective portion of total equity and sum of the values  which results in the WACE. Our example results in a WACE of 19.5%.
WACE = (.24*.50) + (.10*.25) + (.20*.25) = 0.195 or 19.5%

Cost Of Equity
In financial theory, the return that stockholders require for ... 
Cost Of Debt
The effective rate that a company pays on its current debt. This ... 
Equity
Equity is the value of an asset less the value of all liabilities ... 
Weighted Average Cost Of Capital ...
Weighted average cost of capital (WACC) is a calculation of a ... 
Cost Of Capital
The required return necessary to make a capital budgeting project, ... 
Project Finance
Defined by the International Project Finance Association (IPFA) ...

Fundamental Analysis
Discounted Cash Flow Analysis
Find out how analysts determine the fair value of a company with this stepbystep tutorial and learn how to evaluate an investment's attractiveness for yourself. 
Investing
Venturing Into EarlyStage Growth Stocks
Picking these potential winners is all about sizing up risk. We show you how. 
Bonds & Fixed Income
Investors Need A Good WACC
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality. 
Options & Futures
All About EVA
Looking for a formula to determine whether a company is creating wealth? Time to learn all about economic value added. 
Investing Basics
The Different Between Preferred and Common Stock
Preferred and common stocks are different in two key ways. 
Stock Analysis
Analyzing GE's Preferred Stock (GE)
Learn why General Electric Company's new Series D Perpetual Preferred stock is an excellent choice for investors desiring a safe and steady income stream. 
Stock Analysis
Google Stock: A Tale of Two Share Classes (GOOG, GOOGL)
Google stock comes in two different flavors with different rights for shareholders. 
Forex Education
How to Calculate Required Rate of Return
The required rate of return is used by investors and corporations to evaluate investments. Find out how to calculate it. 
Bonds & Fixed Income
What's a Hybrid Security?
A hybrid security combines two or more financial instruments into one security. 
Executive Compensation
Get The Most Out Of Employee Stock Options
Many corporations encourage employees to participate in the company’s growth by offering them a piece of the pie. That means employee stock options.

How do you calculate the excess return of an ETF or indexed mutual fund?
Read about how to calculate and interpret the expected return generated by an exchangetraded fund (ETF) and an indexed mutual ... Read Answer >> 
What are ComputerShare's escheatment services?
Understand the process of escheatment and how it can affect shareholders. Learn about the ways that ComputerShare protects ... Read Answer >> 
What types of capital are not considered share capital?
Find out what types of capital are not considered share capital, including an explanation of the different types of share ... Read Answer >> 
What is the difference between issued share capital and subscribed share capital?
Find out about the difference between subscribed share capital and issued share capital, including an explanation of the ... Read Answer >> 
How many votes am I entitled to, if I own ordinary shares of a company?
Understand what an ordinary share is and how it may benefit investors. Learn how many votes an investor is entitled to, if ... Read Answer >> 
What is the difference between the equity market and the stock market?
Discover the basic information about the equity, or stock, market and the two primary classifications of equities that are ... Read Answer >>