question -The passage below require analysis and breakdown

According to Jean Folger, the weighted average cost of capital (WACC) is the average after-tax cost of a companys various capital sources. The WACC includes preferred stock, common stock, bonds as well as additional debt. The WACC value is calculated by first determining the weight of each capital source and then adding them together. There are, of course, mistakes that can be made with this process, especially when factoring in higher interest rates. When the interest rate goes up, it changes the interest rate used to calculate the WACC, resulting in a higher cost of capital as well as a higher risk of default. As a result, the default premium would rise in addition to further increasing the interest rate used for calculating WACC.

Andrew Jacobson Financial (2020), describes some mistakes he sees made often when estimating the WACC. Those include using the coupon rate as the pre-tax cost of debt as well as using the historical average return on stocks in conjunction with the current risk-free rate (Andrew Jacobson Financial, 2020) when estimating the market risk premium. These mistakes can lead to inaccurate WACC estimates. This can cause further problems because when the WACC shows an increase, the company also shows an increase in risk and a decrease in valuation (Hargrave, 2020). Because of this, its really important to use the correct information to reflect the most accurate WACC possible.