What is the WACC?

The weighted average cost of capital (WACC) is simply an average cost of the two types of capital: debt and equity. It tells us the amount an investor would need in compensation to invest in a project. Therefore if we were to offer a lower return than the WACC, we would find that we have no investors; a return greater than WACC would lead to a situation where we have excess demand for our project.

To theoretically calculate the rate of return on a project we would need to compare it with existing returns on projects which have similar risk characteristics, and then set the return similar to these projects to ensure that we can attract finance. [...]

What is economic development?

‘What is economic development and how would you measure it? Does an increase in per capita national income always constitute an increase in the standard of living?’

Economic development is hard to define, but is an improvement in the living conditions of the population as a whole. Whilst closely linked with economic growth – high growth could result in high development – they are not the same thing and economic growth, as we shall discover, does not necessarily equate to economic development. It can be measured in a variety of different ways and Streeten believes it is necessary for its own sake, to improve the condition of people, because it results in higher productivity and lower fertility (which is generally seen as a good thing), can lead to a better environment and a healthier civil society, democracy and social stability. [...]