What is WACC and when do we use it?

WACC is a blended weight-average between the cost of equity, the after-tax cost of debt, and the cost of preferred equity.

You would use the weighted-average cost of capital (WACC) to discount unlevered free cash flow. UFCFs represent cash flows that are available to ALL stakeholders in the business, which includes both shareholders and debtholders. As such, it makes sense to use a discount rate that considers the respective cost of capital for each of these types of investors.