Weighted average cost of capital WACC is stand for Weighted average cost of capital. WACC is the average after-tax cost of a company’s various capital sources, including common stock, preferred stock, bonds and any other long-term debt. WACC is calculated by multiplying the cost of each capital source by its relevant weight, and then adding the products together to determine the WACC value. Whatever theory you believe, whether there is or isn’t tax, provided the gearing ratio does not change the WACC will not change.

Internal and external factors can cause problems for investors and analysts trying to assess the performance of a company over time period. If a new project consisting of more business activities of the same type is to be funded so as to maintain the present gearing ratio, the current WACC is the appropriate discount rate to use.

Here in this case we have been provided that DDD uses constant 12% WACC as discount rate while evaluating all its domestic projects.For the next five years Company should maintain its WACC because it has taken the decision on the bases of WACC as discount rate while evaluating all its domestic projects.

Conclusion

WACC is not a required rate of return RRR Sometime it can be equal to RRR.but in this case company had taken the decision on the bases of WACC as discount rate while evaluating all its domestic projects. SO all the project that company has been entered in , that must be earn return equal to WACC