WACC Calculator
WACC is the blended, after-tax rate a company pays to finance its assets, weighting the cost of equity and the cost of debt by each one's share of total capital. It is the discount rate most often used to value future cash flows in a DCF. WACC is an estimate built on assumptions. Small changes in the cost of equity or the capital weights move it materially.
Estimate WACC
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Weighted average cost of capital
6.98%
For these assumptions, each dollar of capital costs about 6.98% per year before any project or valuation spread.
Breakdown
- Equity weight
- 60.0%
- Debt weight
- 40.0%
- After-tax debt cost
- 3.95%
- Equity contribution
- 5.40%
- Debt contribution
- 1.58%
How the WACC calculator works
WACC combines the required return from equity holders and lenders into one after-tax capital cost. It is an assumption engine for valuation and capital allocation, not a live market quote.
The calculator weights each financing source by its share of total capital, applies the tax shield to the cost of debt, and sums the two to give one blended rate.
WACC = (E/V) x Re + (D/V) x Rd x (1 - Tc), where V = E + D- E is the market value of equity, D the market value of debt, and V their sum.
- Re is the cost of equity, Rd the pre-tax cost of debt, and Tc the corporate tax rate.
- Debt is multiplied by (1 - Tc) because interest is tax-deductible, lowering its effective cost.
When to use it
Helpful for
- Using WACC as the discount rate in a DCF.
- Setting a hurdle rate for new projects.
- Comparing a company's return on invested capital (ROIC) against its cost of capital.
Can mislead when
- Capital weights use book values instead of market values.
- The cost of equity is mis-estimated from a stale or noisy CAPM beta.
- The company has an unusual capital structure, very high leverage, or negative equity.
Common mistakes
- Using book values of equity and debt instead of market values.
- Forgetting the tax shield: debt cost should be after-tax, Rd x (1 - Tc).
- Plugging in a cost of equity from a stale or noisy beta. Read about Beta.
- Treating WACC as fixed: it shifts with leverage and interest rates.
Worked example
The default inputs use 600 of equity, 400 of debt, 9% cost of equity, 5% pre-tax cost of debt, and a 21% tax rate. Equity is 60% of capital and debt is 40%. After-tax debt cost is 3.95%, so WACC is 5.40% plus 1.58%, or 6.98%.
| Input | Value |
|---|---|
| Equity weight | 60.0% |
| Debt weight | 40.0% |
| After-tax cost of debt | 3.95% |
| Equity contribution | 5.40% |
| Debt contribution | 1.58% |
| WACC | 6.98% |
Frequently asked questions
A good WACC is a low one: it means a company funds itself cheaply, which lifts the present value of its future cash flows. What counts as low depends on interest rates and risk, so stable, low-debt large caps usually carry a lower WACC than smaller or more volatile firms. The decisive test is relative, not absolute: compare WACC to the company's return on invested capital (ROIC). When ROIC clears WACC the business creates value, and when it falls short it destroys value no matter how low the number looks.
Interest payments are tax-deductible, so debt's effective cost to the company is lower than its stated rate. Multiplying by (1 - Tc) captures this tax shield.
Use market values of equity and debt where possible. Book values can badly misstate the true capital weights, especially for equity.
WACC is the discount rate in a discounted cash flow (DCF) model: projected free cash flows are discounted back to present value at the WACC.
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