WACC calculator
WACC blends a company's cost of equity and its after-tax cost of debt, weighted by how much of each it uses. Enter the market value of equity and debt, the cost of each and the tax rate. You get the WACC and the weights behind it.
Runs in your browser: nothing you enter is sent anywhere.
How to use it
- Enter the values of equity and debt.
- Enter the cost of equity and the pre-tax cost of debt.
- Enter the tax rate that applies to interest, or 0.
How it works
- Weight of equity = E ÷ (E + D); weight of debt = D ÷ (E + D).
- Cost of debt after tax = Rd × (1 − tax rate).
- WACC = weight of equity × Re + weight of debt × cost of debt after tax.
Worked example
Equity 600 at 10%, debt 400 at 5%, tax 20%. Weights are 60% and 40%. Debt after tax costs 5 × 0.8 = 4%. WACC = 0.6 × 10 + 0.4 × 4 = 6 + 1.6 = 7.6%.
Tips
- Use the same units for E and D; the weights are ratios.
- Keep the costs as yearly percentages.
- Small changes in the cost of equity move the result most when equity is the bigger part.
Frequently asked questions
What is the WACC formula?
WACC = E ÷ (E + D) × Re + D ÷ (E + D) × Rd × (1 − tax rate), where E and D are the values of equity and debt, Re the cost of equity and Rd the cost of debt.
Why is debt cost reduced by tax?
In many tax systems interest is deductible, so the real cost of debt is lower than its rate. If interest is not deductible for you, enter 0 as the tax rate.
Where do the inputs come from?
Use market values where you can, such as market capitalization for equity. The cost of equity is an estimate, often from a model like CAPM; this tool takes it as a number you enter.
What is WACC used for?
It is a common discount rate for a company's cash flows and a hurdle rate for projects as risky as the company. A project earning less than the WACC is generally seen as destroying value.
What if there is no debt?
Then the weight of debt is zero and the WACC equals the cost of equity.