Why do companies aim at reducing WACC ?
You’re misunderstanding completely! WACC is the weighted average cost of capital required by providers of capital to the firm NOT the return the company makes. Capital is from: Shareholders want a return in terms of dividends, and growth in share price (which will only happen if the company is able to invest in projects that have a return greater than the cost of equity – the desired return for taking on the risk of investing). Lenders will want interest at a rate that rewards the risk of the loan. Therefore the lower the WACC the lower is the return required from these providers of capital so the lower the return needs to be for projects the company undertakes to make them feasible. If the WACC is high there will be fewer projects that are feasible as the return required is higher.
