WACC Calculator

What the WACC calculator does

The WACC calculator works out a company's weighted average cost of capital: the blended annual rate a business pays to finance its assets with equity and debt. It combines the return shareholders require with the interest lenders charge, weights each by its share of total capital, and accounts for the tax relief on debt interest.

The result is the rate of return the company's investments must earn to satisfy everyone who has put money in, a benchmark for finance teams, analysts, and investors.

How WACC is calculated

Shareholders supply equity and lenders supply debt; each demands a return and provides a different share of the total. The weighted average combines those returns in proportion to the capital each provides.

Shareholders are last in line if the business fails, so they demand a higher return. Lenders rank ahead of them and often hold security, so they accept a lower rate. Interest is usually tax deductible as well, which lowers the effective cost of debt; the calculator reduces the cost of debt by one minus the tax rate before blending it in.

WACC = (E/V) × Re + (D/V) × Rd × (1 − Tc)

E is the value of equity, D the 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. The weights E/V and D/V add up to one hundred percent, so WACC sits between the after-tax cost of debt and the cost of equity.

The inputs

• A larger market value of equity pulls WACC towards the cost of equity, usually the higher of the two costs.
• A larger market value of debt pulls WACC towards the cheaper, tax-shielded cost of debt.
• The cost of equity is the return shareholders require, often estimated with the capital asset pricing model. Raising it lifts WACC directly.
• The cost of debt is the pre-tax interest rate on borrowings; the calculator applies the tax shield automatically.
• A higher corporate tax rate deepens the tax shield and lowers the effective cost of debt, nudging WACC down.

The costs and tax rate are entered directly, so the result reflects exactly the assumptions you choose, and you can test how sensitive it is to each one.

Reading the output

The calculator returns the WACC as an annual percentage, plus the equity and debt weights, shown in a donut chart. A mostly equity-funded company shows a WACC close to its cost of equity; one that leans on debt shows a lower blended rate.

Two firms can share the same WACC with very different structures, and the weights show how much of the result comes from cheap debt or expensive equity. If a small change in the debt share moves WACC sharply, the business is sensitive to its financing mix, which matters before you build a valuation on that rate.

Where WACC is used

WACC is most often the discount rate in a discounted cash flow valuation: a lower rate gives a higher present value and vice versa. Valuations can be highly sensitive to it, so the capital weights and costs matter as much as the cash flow forecast.

It also serves as a hurdle rate. A new project that earns less than the WACC destroys value even if it looks profitable on its own, because the capital could have been returned to investors. The costs of equity and debt are judgements about the future, so treat the WACC as an estimate.

Common mistakes

The cost of equity is usually the biggest source of error, because it cannot be observed and has to be modelled. Small changes in the assumed risk premium or beta can move WACC by a full percentage point and swing a valuation sharply, so when a valuation looks unstable, state a range of WACC values.

The costs should match the currency, time horizon, and risk of the cash flows being discounted. Discounting nominal cash flows with a real WACC, or applying a domestic WACC to foreign-currency cash flows, builds an error into the result. The capital weights should reflect a target or long-run structure; a company that has just drawn down a large loan may show an unusually high debt weight.

WACC is a cost of financing, not a measure of business risk, competitive position, or management quality. A low WACC can accompany a fragile company, so cross-check it against comparable companies.

About This WACC Calculator

Use this WACC calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.