WACC Calculator
Work out a company's weighted average cost of capital, the blended return its investors require and a common discount rate for DCF valuations. Enter the market values of equity and debt, their costs and the tax rate; preferred stock and a CAPM cost of equity are optional.
Market cap = share price × shares outstanding.
Preferred dividend ÷ preferred price.
Yield to maturity on the company's debt.
How to use the WACC Calculator
- Enter the market value of equity (share price × shares outstanding) and the value of debt.
- Enter the cost of equity, or choose CAPM and enter the risk-free rate, beta and market return.
- Enter the pre-tax cost of debt (the yield on the company's debt) and the corporate tax rate.
- Add preferred stock and its cost if the company has any (optional).
- Read the WACC, the weights and each component's contribution, and download the table.
WACC formula
WACC = (E ÷ V) × Re + (D ÷ V) × Rd × (1 − T) + (P ÷ V) × Rp
- E, D, P: market values of equity, debt and preferred stock; V = E + D + P
- Re: cost of equity, often from CAPM: Re = Rf + β × (Rm − Rf)
- Rd: pre-tax cost of debt, such as the yield to maturity on the company's bonds
- T: corporate tax rate (interest is tax-deductible); Rp: cost of preferred = annual preferred dividend ÷ preferred price
Example: $600M equity at 10%, $400M debt at 6%, 25% tax. Weights 60% / 40%. After-tax cost of debt = 6% × 0.75 = 4.5%. WACC = 0.60 × 10% + 0.40 × 4.5% = 7.8%.
How the debt mix changes WACC (same costs)
Using a 10% cost of equity, 6% pre-tax cost of debt and 25% tax rate, holding both costs fixed:
| Debt weight | Equity weight | WACC |
|---|---|---|
| 0% | 100% | 10.00% |
| 20% | 80% | 8.90% |
| 40% | 60% | 7.80% |
| 60% | 40% | 6.70% |
In reality the costs do not stay fixed: more debt raises the risk for both lenders and shareholders, so Rd and Re climb and the benefit shrinks or reverses. That is why companies do not simply load up on debt. Use current market values and costs that match the riskiness of the cash flows you are discounting.
Frequently asked questions
What is the WACC formula?
WACC = (E ÷ V) × Re + (D ÷ V) × Rd × (1 − T) + (P ÷ V) × Rp, where E, D and P are the market values of equity, debt and preferred stock, V = E + D + P, Re is the cost of equity, Rd the pre-tax cost of debt, Rp the cost of preferred stock and T the corporate tax rate.
Can you show a WACC example?
A company with $600M of equity costing 10% and $400M of debt costing 6%, with a 25% tax rate: weights are 60% and 40%; after-tax cost of debt = 6% × 0.75 = 4.5%. WACC = 0.6 × 10% + 0.4 × 4.5% = 6% + 1.8% = 7.8%.
Why is the cost of debt multiplied by (1 − tax rate)?
Interest payments are usually tax-deductible, so each dollar of interest reduces the company's tax bill. The real cost of borrowing is therefore lower than the stated interest rate. Preferred dividends and returns to shareholders are not deductible, so they get no tax adjustment.
How do I find the cost of equity?
The most common method is CAPM: cost of equity = risk-free rate + beta × (expected market return − risk-free rate). With a 4% risk-free rate, beta 1.2 and a 9% market return, the cost of equity is 4% + 1.2 × 5% = 10%. Choose CAPM in the calculator to compute it.
Should I use market values or book values?
Use market values where possible: market capitalization for equity and the market value of debt (book value is a common substitute for debt because it is often close). Market values reflect what investors would need to be paid today.
What is WACC used for?
WACC is the minimum average return a company must earn on its investments to satisfy both lenders and shareholders. It is used as the discount rate in discounted cash flow (DCF) valuations and as a hurdle rate for projects with risk similar to the company as a whole.