Weighted Average Cost of Capital Calculator

WACC Calculator

Calculate the Weighted Average Cost of Capital (WACC) for your company

Capital Structure

Cost of Equity (Re) %

Total Equity (E)

Cost of Debt (Rd) %

Total Debt (D)

Corporate Tax Rate (Ctr) %

WACC Results

Weight of Equity

E ÷ (E + D)

Weight of Debt

D ÷ (E + D)

WACC

(E÷V × Re) + (D÷V × Rd × (1−Tc))

Capital Structure

Equity

Debt

Detailed Calculation

Component	Calculation	Result

About WACC

WACC (Weighted Average Cost of Capital) represents a firm's average after-tax cost of capital from all sources.

Formula: WACC = (E÷V × Re) + (D÷V × Rd × (1−Tc))

Where:

E = Market value of equity

D = Market value of debt

V = E + D (Total capital)

Using WACC

Used as a discount rate in discounted cash flow analysis

Helps evaluate investment opportunities

Used to determine economic value added (EVA)

Important for capital budgeting decisions

Interpretation

The WACC represents the minimum return that a company must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital.

Note: A lower WACC indicates that a company can take on projects with lower returns and still create value for shareholders. Companies typically compare the WACC to the IRR (Internal Rate of Return) of potential projects.

What is WACC?

The Weighted Average Cost of Capital (WACC) is the average rate a company pays to finance its operations, weighted by the proportion of each capital source (debt and equity). It represents the minimum return a company must earn to satisfy its investors and creditors.

WACC is used in:

Investment decisions (e.g., evaluating projects)
Company valuation (DCF analysis)
Mergers & Acquisitions (M&A)
Capital structure optimization

WACC Formula

The WACC formula combines the cost of equity and the after-tax cost of debt, weighted by their proportions in the capital structure:

W A C C = (\frac{E}{V} \times r_{e}) + (\frac{D}{V} \times r_{d} \times (1 - T_{c}))

Variables:

Variable	Description
$E$	Market value of equity
$D$	Market value of debt
$V = E + D$	Total firm value
$r_{e}$	Cost of equity (estimated via CAPM or DDM)
$r_{d}$	Cost of debt (yield to maturity on bonds/interest rate)
$T_{c}$	Corporate tax rate

How to Calculate WACC (Step-by-Step)

Step 1: Determine the Market Value of Equity ( $E$ )

Public Companies:
$E = Share Price \times Total Outstanding Shares$
Private Companies: Use comparable company analysis or book value adjustments.

Step 2: Determine the Market Value of Debt ( $D$ )

Public Companies: Use the market value of bonds.
Private Companies: Use book value or estimate based on similar firms.
Short-term Debt: Include if part of the capital structure.

Step 3: Calculate the Cost of Equity ( $r_{e}$ )

Method 1: Capital Asset Pricing Model (CAPM)

r_{e} = r_{f} + β \times (r_{m} - r_{f})

$r_{f}$ = Risk-free rate (e.g., 10-year Treasury bond)
$β$ = Beta (stock's volatility vs. market)
$r_{m} - r_{f}$ = Market risk premium

Method 2: Dividend Discount Model (DDM)

r_{e} = \frac{D_{1}}{P_{0}} + g

$D_{1}$ = Expected dividend next year
$P_{0}$ = Current stock price
$g$ = Dividend growth rate

Step 4: Calculate the Cost of Debt ( $r_{d}$ )

Public Companies: Use yield to maturity (YTM) on bonds.
Private Companies: Use average interest rate on loans.
After-Tax Cost of Debt: $r_{d} \times (1 - T_{c})$

Step 5: Compute WACC

Plug all values into the WACC formula.

Example WACC Calculation

Given:

Equity ( $E$ ): $500M
Debt ( $D$ ): $300M
Total Value ( $V$ ): $800M
Cost of Equity ( $r_{e}$ ): 10% (from CAPM)
Cost of Debt ( $r_{d}$ ): 5%
Tax Rate ( $T_{c}$ ): 30%

Calculation:

W A C C = (\frac{500}{800} \times 0.10) + (\frac{300}{800} \times 0.05 \times (1 - 0.30))

W A C C = (0.625 \times 0.10) + (0.375 \times 0.035)

W A C C = 0.0625 + 0.013125 = 0.075625 or * * 7.56 % * *

WACC Calculator (Excel/Google Sheets)

Here’s a simple template:

Input	Value	Formula
Market Value of Equity ( $E$ )	500,000,000	-
Market Value of Debt ( $D$ )	300,000,000	-
Total Firm Value ( $V$ )	=SUM(B2:B3)	$E + D$
Cost of Equity ( $r_{e}$ )	10%	(From CAPM/DDM)
Cost of Debt ( $r_{d}$ )	5%	(YTM/Interest Rate)
Tax Rate ( $T_{c}$ )	30%	-
WACC	= (B2/B4)B5 + (B3/B4)(B6*(1-B7))	7.56%

Why is WACC Important?

Investment Decisions:
- If a project's return > WACC, it adds value.
- If return < WACC, it destroys value.
Valuation: Used in Discounted Cash Flow (DCF) analysis.
Optimal Capital Structure: Helps balance debt vs. equity to minimize cost.

Limitations of WACC

Assumes constant capital structure (debt/equity mix).
Beta (β) can be volatile and hard to estimate for private firms.
Tax rates may change, affecting after-tax cost of debt.

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