WACC Calculator
Enter the market value of equity and debt, their costs and your tax rate to find the weighted average cost of capital. The default example gives 7.8%.
How the WACC calculator works
The weighted average cost of capital is the blended rate a company pays to fund itself with equity and debt. Each source of money has a cost: shareholders expect a return, and lenders charge interest. WACC weights those costs by how much of the total capital each source supplies. Finance teams use it as a discount rate for valuing projects and companies.
Enter the market value of equity and the market value of debt, the cost of equity, the pre-tax cost of debt, and the tax rate. The calculator finds the weights, applies the tax shield to the cost of debt and returns the blended rate.
The formulas
Example: A company has $600,000 of equity and $400,000 of debt, so total capital is $1,000,000.00. Equity is 60% of the mix and debt is 40%. With a 10 percent cost of equity, 6 percent cost of debt and 25 percent tax rate, the after-tax cost of debt is 4.5%, and WACC is 7.8%. These are illustration numbers, not a benchmark.
Where the inputs come from
Cost of equity is usually an estimate, often built from a risk-free rate, a market premium and a company-specific risk adjustment. The Federal Reserve publishes daily Treasury yields on its H.15 release, which analysts use as a risk-free reference. Cost of debt is the interest rate on borrowing, such as the yield on bonds or the rate on a bank loan. Use market values where you can, not book values.
Limits
WACC is only as good as its inputs, and small changes in the cost of equity move the result a lot. It assumes a stable capital structure and a single tax rate. It is a general estimate and not financial advice. To value a business using a rate like this, try the business valuation calculator.
If a company has no debt, the debt weight is zero and WACC equals the cost of equity. If you enter a tax rate of zero, the after-tax cost of debt equals the pre-tax rate. Enter percentages as whole numbers, such as 6 for 6 percent, and dollar values in the same units for equity and debt.
Using WACC well
WACC is usually used as the hurdle rate for projects with about the same risk as the company as a whole. A project expected to earn more than the WACC is generally viewed as creating value. For a project that is much riskier or safer than the rest of the business, many analysts adjust the rate rather than use one company-wide figure. If you cannot observe a market value for equity, as in a private business, an estimate from comparable companies is a common stand-in. Revisit the figure when interest rates, your debt mix or your tax rate change.
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Frequently asked questions
What is WACC?
It is the weighted average of a company’s cost of equity and after-tax cost of debt, weighted by each source’s share of total capital.
Why is the cost of debt multiplied by one minus the tax rate?
Interest is generally tax deductible, so the real cost of borrowing is lower after tax. Here the 6 percent pre-tax rate becomes 4.5%.
Should I use book value or market value for the weights?
Market values are preferred because they show what investors and lenders currently require. Book values are a fallback when market values are unavailable.
What is the WACC in the default example?
With $600,000 equity and $400,000 debt, the weighted average cost of capital comes to 7.8%.
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