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WACC Calculator

Find a company's blended cost of capital.

How it is calculated

WACC blends the cost of each funding source by its share of total capital: WACC = E/V × Re + D/V × Rd × (1 − T), where E is the market value of equity, D the market value of debt, V = E + D, Re the cost of equity in %, Rd the pre-tax cost of debt in % and T the tax rate in %. Interest is tax-deductible, so only the debt term is multiplied by (1 − T). If tax is left blank it is taken as 0%. The tool also shows the equity and debt weights. Equity and debt must not be negative and their sum must be above zero.

Worked example

Equity 600,000, debt 400,000, so V = 1,000,000. Weights: equity 60.00%, debt 40.00%. Equity part = 0.60 × 12% = 7.2%. Debt part = 0.40 × 6% × (1 − 0.25) = 1.8%. WACC = 7.2% + 1.8% = 9.00%.

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Common mistakes

  • Using book values of equity instead of market values; the weights should reflect what the capital is worth today.
  • Entering the after-tax cost of debt and then also entering a tax rate, which applies the tax shield twice.
  • Typing rates as decimals (0.12) instead of percentages (12).
  • Using the coupon rate of old debt rather than the rate the company would pay on new borrowing now.
  • Treating WACC as a fixed number; it changes as the capital mix and market rates change.

Sources

About this calculator

This calculator finds a company's weighted average cost of capital (WACC): WACC = (E/V)×Re + (D/V)×Rd×(1−Tc), where E and D are the market values of equity and debt, V = E+D, Re is the cost of equity, Rd is the cost of debt, and Tc is the corporate tax rate (debt gets a tax shield since interest is deductible).

Corporate finance professionals, investment analysts, and MBA students use WACC as the discount rate in DCF valuations and as the minimum required return a company's investments must clear to create value.

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Comments (1)

  • Editorial team

    WACC is only as good as its inputs, and the cost of equity is the hardest one, since it is an estimate rather than a price you can look up. Weights should use market values of equity and debt, not book values, which can differ widely. The tax rate only reduces the cost of debt, and leaving it empty means zero. Use the result as a hurdle rate for projects of similar risk. How do you estimate the cost of equity? Share your method.

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