WACC Calculator (Weighted Average Cost of Capital)

Calculate the weighted average cost of capital from the cost of equity, cost of debt, capital structure, and tax rate — the standard discount rate for valuation.

🏦 Investment Analysis📐 WACC = (E/V × Re) + (D/V × Rd × (1 − Tc))💼 Business

Market value of equity

Market value of debt

Cost of equity (%)

Cost of debt (%)

Corporate tax rate (%)

Please enter valid values.

Formula & Reference

Variable	Symbol	Formula	Units
WACC Calculator (Weighted Average Cost of Capital)	—	WACC = (E/V × Re) + (D/V × Rd × (1 − Tc))	percent

Step-by-Step Examples

Example 1

Balanced Structure

Equity 6M at 12%, debt 4M at 6%, tax rate 21%.

V = 10M, so E/V = 60%, D/V = 40%
After-tax cost of debt = 6% × (1 − 0.21) = 4.74%
WACC = 0.60 × 12% + 0.40 × 4.74%
WACC = 7.2% + 1.896% = 9.10%

✓ WACC 9.10%

Example 2

Equity-Heavy

Equity 9M at 13%, debt 1M at 7%, tax rate 21%.

E/V = 90%, D/V = 10%
After-tax debt = 7% × 0.79 = 5.53%
WACC = 0.90 × 13% + 0.10 × 5.53% = 12.25%
Less debt means less tax shield and a higher WACC

✓ WACC 12.25%

Example 3

Leveraged

Equity 3M at 16%, debt 7M at 8%, tax rate 21%.

E/V = 30%, D/V = 70%
After-tax debt = 8% × 0.79 = 6.32%
WACC = 0.30 × 16% + 0.70 × 6.32% = 9.22%
Note cost of equity rose to 16% — leverage raises equity risk

✓ WACC 9.22%

Real-World Applications

💹

Valuation Discount Rate

WACC is the standard rate for discounting free cash flows to the firm in a DCF valuation.

✅

Hurdle Rate Setting

Many companies set project hurdle rates at or above WACC, since returns below it destroy value.

⚖️

Capital Structure Decisions

Modelling WACC across different debt levels shows how leverage affects the overall cost of capital.

📉

Tax Shield

Because interest is tax-deductible, debt carries a lower effective cost than its stated rate — a core reason capital structure matters.

Common Mistakes to Avoid

⚠️

Using book values instead of market values

WACC weights should use market values of equity and debt. Book equity in particular can diverge enormously from market capitalisation.

⚠️

Assuming more debt always lowers WACC

The tax shield reduces WACC initially, but rising leverage increases both the cost of equity and the cost of debt as financial distress risk grows. WACC eventually turns upward.

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Applying a single company WACC to every project

Projects with different risk profiles warrant different discount rates. Using one company-wide WACC systematically overvalues risky projects and undervalues safe ones.

Frequently Asked Questions

What is WACC? ▾

The average rate a company pays to finance its assets, weighting the cost of equity and after-tax cost of debt by their share of total capital.

How do I calculate the cost of equity? ▾

Most commonly with the capital asset pricing model: the risk-free rate plus beta multiplied by the equity risk premium.

Why is the cost of debt adjusted for tax? ▾

Interest payments are tax-deductible in most jurisdictions, so each unit of interest reduces the tax bill, lowering the effective cost.

Should WACC use book or market values? ▾

Market values. Book values reflect historical accounting rather than what investors currently require to hold the securities.

Does more debt always reduce WACC? ▾

No. Initially the tax shield lowers it, but beyond a point the rising cost of both equity and debt from financial distress risk pushes WACC back up.