Final answer:
WACC is a financial metric used by companies to calculate their overall cost of capital. It includes both debt and equity components. Not all firms use all components of the WACC.
Step-by-step explanation:
WACC, or Weighted Average Cost of Capital, is a financial metric used by companies to calculate their overall cost of capital. It includes both debt and equity components. The debt component takes into account the cost of borrowing, such as interest payments on loans or bonds. The equity component represents the cost of raising capital through issuing stock.
Not all firms use all components of the WACC. For example, if a company does not have any debt, then the debt component would be zero. Similarly, if a company is not publicly traded and does not have any equity financing, then the equity component would also be zero. However, most companies use a combination of debt and equity financing, and therefore, include both components in their WACC calculation.