WACC Calculator

This calculator works out a company's weighted average cost of capital from the market value of its equity and debt, what each costs, and its tax rate. It shows the equity and debt weights and the after-tax cost of debt so you can see what drives the result.

WACC is the discount rate most often used to value a whole business or a project of average risk. Analysts use it in discounted cash flow models and business valuations; finance teams use it as the hurdle rate a project's IRR must beat, or as the rate in a net present value calculation.

The formula is simple; the inputs are the hard part. Cost of equity cannot be observed directly and is usually estimated, and small changes in it move WACC a lot. Use market values, not book values, for the weights wherever you can, and treat the result as an estimate with a range rather than a precise figure.

This is the standard textbook WACC used in corporate finance and valuation. The (1 − t) term reflects the tax shield on interest, which only applies if the company has taxable profits to deduct interest from. If preferred stock is part of the capital structure, add a third term, (P ÷ V) × Rp, with no tax adjustment. WACC is the right discount rate only for projects with the same risk and financing mix as the company as a whole.

Most analysts estimate cost of equity with the capital asset pricing model:

Re = risk-free rate + beta × equity risk premium

• Risk-free rate: the yield on long-term government bonds in the company's currency, such as the 10-year US Treasury.
• Beta: how much the stock moves with the market. 1.0 means in line with the market; above 1 is riskier. For private companies, use the average beta of comparable listed companies, adjusted for differences in debt.
• Equity risk premium: the extra return investors expect from stocks over government bonds. Published estimates commonly fall around 4–6%.

With a 4% risk-free rate, a beta of 1.2 and a 5% premium, Re = 4% + 1.2 × 5% = 10%. Small private companies often add a size or company-specific premium on top.

• Cost of debt should be what the company would pay to borrow today, not the coupon on old loans. For listed bonds use the yield to maturity; otherwise use a recent loan quote or a credit-rating-based spread over government yields.
• Tax rate should be the marginal rate on the next dollar of profit. In the US that is the 21% federal rate plus state tax. A loss-making company gets no immediate tax shield, so use 0% for its after-tax cost of debt.
• Leases and other debt-like items are often included in D by analysts, since they carry fixed obligations.

Debt is cheaper than equity, and interest is tax-deductible, so replacing some equity with debt lowers WACC at first. Beyond a certain point lenders and shareholders both demand more for the added default risk, and WACC starts to rise again. The table shows the arithmetic with costs held constant — real costs would climb with leverage.