Weighted Average Cost of Capital. An average representing the expected (incremental) return on all of a company’s securities. Each source of financial capital, such as stocks, bonds, and other preferred stock, is assigned a required rate of return. These (estimated) required rate of return are weighted in proportion to the share each source of capital contributes to the company’s overall capital structure (reflecting current market values or the target capital structure). The resulting rate is what the firm would use as a minimum hurdle rate (required return) for evaluating a capital project or investment. In a regulatory setting, the allowed rate of return would be based on the WACC, sometimes modified to use book values for the capital structure weights and/or the coupon rates of issued bonds (instead of the current yield to maturity of the firm’s long term bonds).