Cost of Capital (WACC) Calculator
Calculate a firm's Weighted Average Cost of Capital (WACC) — the blended required return on equity and after-tax cost of debt weighted by their shares of total capital.
How to use this tool
- Enter market value of equity, market value of debt, cost of equity (re), cost of debt (rd, pre-tax) and corporate tax rate in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your wacc and the full breakdown beneath it.
Formula
WACC = (E/V) × Re + (D/V) × Rd × (1 − Tc)
Where E = market value of equity, D = market value of debt, V = E + D (total capital), Re = cost of equity, Rd = pre-tax cost of debt, Tc = corporate tax rate.
How it works
WACC represents the minimum return a company must earn on its existing asset base to satisfy its creditors, owners, and other capital providers. Debt is tax-advantaged because interest payments are tax-deductible, so the effective cost of debt is multiplied by (1 − tax rate). Equity is more expensive because equity holders bear greater risk and their returns are not tax-deductible for the firm.
This calculator uses market values (not book values) for the capital weights, which is the standard approach in corporate finance. The cost of equity is typically estimated using CAPM or a dividend discount model, and should be entered by the user based on those separate analyses. WACC is commonly used as the discount rate in DCF valuations.
Worked example
60% equity / 40% debt capital structure
- Equity = $6,000,000, Debt = $4,000,000 → V = $10,000,000. E/V = 60%, D/V = 40%.
- Cost of equity Re = 12%. After-tax cost of debt = 8% × (1 − 0.21) = 8% × 0.79 = 6.32%.
- WACC = 0.60 × 12% + 0.40 × 6.32% = 7.20% + 2.528% = 9.728%.
WACC = 9.728%.
Key terms
- WACC
- Weighted Average Cost of Capital — the blended rate a company must earn on its capital to satisfy all providers of finance, weighted by each source's share of total capital.
- Cost of Equity
- The return required by equity shareholders, often estimated via CAPM as the risk-free rate plus a beta-adjusted equity risk premium.
- Cost of Debt
- The effective interest rate a company pays on its borrowings; the after-tax cost is lower because interest is tax-deductible.
- Tax Shield
- The reduction in taxable income (and hence taxes owed) resulting from deducting interest expense, which lowers the effective cost of debt financing.
- Capital Structure
- The mix of debt and equity a company uses to finance its assets, which determines the weights in the WACC calculation.