WACC Calculator
Calculate Weighted Average Cost of Capital
The weighted average cost of capital is the blended rate a company pays for the money it uses, mixing the return shareholders expect with the after-tax interest lenders charge in proportion to how much of each the company has. It is the usual discount rate for valuing a business or testing whether a project earns more than its financing costs. Enter the market values of equity and debt, the cost of each, and the tax rate; the calculator returns WACC and the equity and debt weights.
Calculator Inputs
Results
Enter values above to see your results
The result is only as good as the cost-of-equity and cost-of-debt estimates you enter, both of which involve judgment. The two-source formula ignores preferred stock and other hybrid capital.
How It Works
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, Rd the pre-tax cost of debt, and T the corporate tax rate. Interest is tax-deductible in most jurisdictions, so debt's effective cost is reduced by the factor (1 − T); dividends are not deductible, so equity carries its full cost.
Where the inputs come from
Market value of equity is share price × shares outstanding, not the book value on the balance sheet. Market value of debt is the price of the company's bonds and loans; book value is a common proxy when debt is not traded. Cost of equity is usually estimated with CAPM (risk-free rate + beta × market premium). Cost of debt is the yield the company would pay on new borrowing today, which can be read from its bond yields or the rate on recent loans. The tax rate should be the marginal rate the company actually pays; the default 21% is the US federal corporate rate.
What this version leaves out
The formula here has two capital sources. Companies with preferred stock add a third term, (P ÷ V) × Rp, with V = E + D + P. Leases, convertible debt, and minority interests are also sometimes added as separate layers. If any of these are material, the two-source WACC will be slightly off.
Worked example
Default inputs: $1,000,000 equity, $500,000 debt, Re 10%, Rd 5%, tax 21%
$1,000,000 + $500,000= $1,500,000$1,000,000 ÷ $1,500,000= 66.7%$500,000 ÷ $1,500,000= 33.3%0.6667 × 10%= 6.667%0.3333 × 5% × (1 − 0.21)= 1.317%6.667% + 1.317%= 7.98%Tips & Best Practices
- •WACC is the standard discount rate in a discounted cash flow valuation of the whole firm (free cash flow to the firm). Equity-only cash flows should be discounted at the cost of equity instead.
- •Use market values for the weights. Using book equity for a company whose shares have risen understates the equity weight and usually understates WACC.
- •A small change in cost of equity moves WACC far more than the same change in cost of debt, because equity usually carries both the larger weight and the higher rate.
Frequently Asked Questions
Why is debt multiplied by (1 − tax rate)?
Because interest payments reduce taxable profit. A company paying 5% interest at a 21% tax rate effectively pays 5% × 0.79 = 3.95% after the tax saving. Dividends paid to shareholders do not reduce taxable profit, so the cost of equity is not adjusted.
Does more debt always lower WACC?
Not indefinitely. Debt is cheaper than equity and tax-deductible, so adding some debt lowers WACC. Beyond a point, higher leverage raises both the interest rate lenders demand and the beta of the equity, pushing both costs up. The calculator holds Re and Rd fixed, so it will not show that effect.
What is a typical WACC?
For large, established US companies it commonly falls between about 6% and 10%, depending on the industry, leverage, and the level of interest rates. Riskier or smaller companies are higher. Treat these as orientation only; the right figure is the one built from the company's own inputs.
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