What is the importance of calculating weighted average cost of capital ?

Basically Weight average cost of capital is used to calculate to calculate the required rate of return of an entire firm. It incorporates debt, equity, and preferred shares of stock into this required rate. These are the various ways that a firm can raise capital. It is important to incorporate this fact into the rate because firms do not raise all of their capital from one source. They often gather it from a combination of all of these sources. Each method of raising capital has a different cost associated with it, and must be taken into account.

Determine cost of capital of equity, preference, debt and any other capital. And also to optimize the value, or return, of the organization’s finances.