How does WACC relate to discount factor in NPV calculations?
WACC is the rate of return that we use to discount cash flows in Capital Budgeting Metrics such as NPV, MIRR and Discounted Payback Period WACC provides us with a hurdle rate or discount rate that we can compare with IRR for example to judge the viability of our investment IRR greater than WACC or discount rate would make the project profitable If WACC or discount rate is higher than IRR, we will have a negative NPV thus we shouldn’t accept the project.
