The WACC (Weighted Average Cost of Capital) is considered an opportunity cost because it represents the return that investors (shareholders and creditors) forego by investing their funds in the company rather than in other assets available on the market with an equivalent risk profile.
Here are the detailed reasons for this qualification:

1. The existence of investment alternatives (The choice of the market)

Investors are not obliged to fund a specific company. They observe the capital market and have the opportunity to invest in various asset classes (equities, bonds).

• By allocating their funds to a project or a company, they are depriving themselves of the return they could have obtained elsewhere.
• The WACC embodies this “market supply”: it is the average rate of return that the investor could reasonably expect from a portfolio of alternative assets with the same level of risk.

2. The Equivalent Risk Comparison

This opportunity cost is inseparable from the notion of risk.

• For creditors, the opportunity cost corresponds to the rate they would obtain by lending to another company of the same quality of signature (equivalent probability of default).
• For shareholders, the opportunity cost is calculated via the CAPM (Capital Asset Pricing Model). It corresponds to the risk-free rate plus a risk premium. If the company does not remunerate this risk at the level of what the market offers for an identical systematic risk (Beta), the shareholder suffers a loss of opportunity.

3. Measuring value destruction (Loss of opportunity)

If a project generates a profitability lower than the WACC (for example 4% for a WACC of 7%), the company does not necessarily generate an accounting loss, but it generates a loss of opportunity for its financiers.

• Investors have gained 4, when they could have gained 7 in the market. They have therefore “lost” 3.
• It is this loss of opportunity that defines value destruction.

4. The asset manager’s logic

Corporate finance places the investor in the position of an asset manager. To justify the allocation of funds to the company, it must promise to “beat the market” (its benchmark).

• If the company is only following the market (profitability = WACC), it does not create additional value (NPV = 0).
• Value is only created if the profitability of the project outweighs this opportunity cost (the return offered by the market).

In summary, the WACC is the price of time and risk set by the market. This is the minimum break-even point that the company must reach to compensate its investors for having chosen its project over another available stock market or bond opportunity.