WACC Calculator
Enter the market value of equity and debt (and preferred stock, if any), the cost of each and the tax rate, and get the weighted average cost of capital with every step shown. Type the cost of equity or have it calculated with CAPM. The after-tax cost of debt and the size of the tax shield are shown separately. Free, no sign-up.
Capital structure and costs
Share price × shares outstanding. Amounts or percentages both work: only the proportions matter.
Book value of debt is a common stand-in when market value is not available.
The interest rate the firm pays on new borrowing, or the yield to maturity on its bonds.
Annual preferred dividend ÷ preferred price.
WACC = E/V × Re + D/V × Rd × (1 − tax rate) + P/V × Rp. Interest is tax-deductible, so debt enters at its after-tax cost; dividends are not deductible.
Results
6.9%
WACC
9%
Cost of equity used
3.75%
After-tax cost of debt
0.5%
Reduction from the tax shield
$1,000,000.00
Total capital (V)
The working
Cost of equity (CAPM) = Rf + β × (Rm − Rf) = 3% + 1.2 × (8% − 3%) = 9%
After-tax cost of debt = Rd × (1 − tax rate) = 5% × (1 − 25%) = 3.75%
WACC = 60% × 9% + 40% × 3.75% = 6.9%
Contribution of each source
| Source | Amount | Weight | Cost before tax | Cost used | Weighted cost |
|---|---|---|---|---|---|
| Equity | $600,000.00 | 60% | 9% | 9% | 5.4% |
| Debt | $400,000.00 | 40% | 5% | 3.75% | 1.5% |
| Total | $1,000,000.00 | 100% | 6.9% |
How to Use the WACC Calculator
- 1. Enter the capital structure. The market value of equity (share price × shares outstanding) and of debt. If the firm has preferred stock, add it too. Only the proportions matter, so percentages work as well as amounts.
- 2. Set the cost of equity. Type it, or choose "Calculate it with CAPM" and enter the risk-free rate, beta and expected market return. The calculator shows the CAPM step.
- 3. Enter the cost of debt and the tax rate. The cost of debt is the pre-tax interest rate on borrowing or the yield to maturity on the firm's bonds. Interest is tax-deductible, so the calculator applies (1 − tax rate).
- 4. Read the WACC and the table. Each source of capital shows its weight, its cost before and after tax, and how much it contributes to the total.
The WACC Formula
The weighted average cost of capital is the average rate a company pays to fund itself, weighted by how much it uses of each source: WACC = E/V × Re + D/V × Rd × (1 − Tc) + P/V × Rp. E, D and P are the market values of equity, debt and preferred stock, and V = E + D + P. Re, Rd and Rp are the costs of those sources and Tc is the corporate tax rate.
- Cost of equity (Re) is not paid out as a contractual rate, so it must be estimated — most often with the Capital Asset Pricing Model, Re = Rf + β × (Rm − Rf), or from a dividend-growth model. The CAPM Calculator does the first.
- Cost of debt (Rd) is the rate lenders require today, not the coupon on old debt. The yield to maturity on traded bonds is a good proxy; the Bond Yield Calculator finds it.
- After-tax cost of debt is Rd × (1 − Tc). Interest reduces taxable profit, so every unit of interest costs the firm only (1 − Tc) after tax. Dividends are not deductible, which is why equity and preferred stock enter at their full cost.
- Weights use market values where possible. Book value of equity can be far from what shareholders' stake is worth; book value of debt is often close to market value and is a common substitute.
Worked Example
A firm has equity worth 600,000 and debt of 400,000, so total capital is 1,000,000 and the weights are 60% and 40%. Using CAPM with a 3% risk-free rate, a beta of 1.2 and an 8% market return, the cost of equity is 3% + 1.2 × 5% = 9%. Its debt costs 5% before tax, and the tax rate is 25%, so the after-tax cost of debt is 5% × 0.75 = 3.75%. The WACC is 0.60 × 9% + 0.40 × 3.75% = 5.4% + 1.5% = 6.9%.
Without the interest deduction the WACC would be 0.60 × 9% + 0.40 × 5% = 7.4%, so the tax shield lowers the cost of capital by 0.5 percentage points. Add preferred stock and the same formula still holds: with equity 500, debt 300 and preferred 200 (weights 50%, 30%, 20%), costs of 12%, 6% and 8% and a 30% tax rate, WACC = 6% + 1.26% + 1.6% = 8.86%.
Using and Misusing WACC
WACC is the usual discount rate for projects that carry the same risk as the firm's existing business, and the hurdle rate a project's return should beat. It is the discount rate to use in the NPV and IRR Calculator for such projects. It is a poor rate for a project in a very different line of business, whose risk calls for its own rate.
- Costs move with leverage. More debt raises the risk of equity, so the cost of equity rises as the debt share rises. The calculator does not do that for you: change the inputs together.
- Target versus current weights. Many analysts use the firm's target capital structure rather than today's.
- Estimates, not facts. Beta, the market return and the cost of debt are all estimates; small changes move the WACC noticeably. Try a range of inputs.
- Not advice. This is a teaching calculator, not investment or valuation advice.
Frequently Asked Questions
- How do you calculate WACC?
- Multiply each source of capital's cost by its share of total capital and add them up, using the after-tax cost for debt: WACC = E/V × Re + D/V × Rd × (1 − Tc). With 60% equity at 9% and 40% debt at 5% pre-tax with 25% tax, WACC = 5.4% + 1.5% = 6.9%.
- Why use the after-tax cost of debt?
- Because interest is deducted before tax, so the firm saves Tc of every unit of interest it pays. A 5% loan at a 25% tax rate costs the firm 3.75% after tax. Use the pre-tax rate only if the firm pays no tax or interest is not deductible.
- What is a good WACC?
- There is no universal good number: it depends on the industry, the firm's risk and interest rates. A lower WACC means cheaper funding. What matters is comparing project returns with the WACC — a project that earns more than the WACC, at the same risk, adds value.
- Should I use book value or market value for the weights?
- Market values, where you can get them: they show what investors would require today. For equity that is the market capitalization; for debt, the market value of bonds or, if unavailable, the book value as an approximation.
- How do I find the cost of equity?
- The most common approach is CAPM: risk-free rate plus beta times the market risk premium. Others include the dividend growth model and build-up methods. This calculator accepts a value you provide or computes the CAPM figure from your inputs.
- How is WACC different from the discount rate?
- WACC is one way to set the discount rate: the average cost of the firm's financing, used for projects of similar risk. A discount rate can also be a project-specific required return or the cost of equity alone when valuing equity cash flows.