In the WACC formula, what does %equity represent?

The percentage of equity in the WACC (Weighted Average Cost of Capital) formula represents the proportion of a company's financing that is derived from equity sources. This percentage is crucial in calculating the overall cost of capital, as it reflects how much of the company's capital is financed through shareholders’ equity compared to other sources, such as debt.

By using this percentage in the WACC calculation, analysts can properly weigh the costs associated with equity financing against the costs of debt financing. This weighting is essential since equity typically has a higher cost compared to debt due to the higher risk it poses for investors, who expect a return commensurate with that risk. Consequently, the %equity serves as a crucial element that helps determine the overall cost of capital, enabling more accurate financial analysis and decision-making regarding investment and financing strategies.

The other options misinterpret the role of %equity in the WACC formula, either by implying it refers to a dollar amount or a cost, rather than the relative proportion necessary for correctly calculating the weighted average cost of capital.