WACC Calculator
Work out the weighted average cost of capital for a business. Use the CAPM builder for the cost of equity or type it in directly, then see the capital structure weights and each component's contribution.
| Component | Weight | Cost | Adds |
|---|---|---|---|
| Equity | 70.0% | 9.25% | 6.48% |
| Debt (after tax) | 30.0% | 4.74% | 1.42% |
WACC = E/V x Re + D/V x Rd x (1 - tax rate). The default CAPM inputs (4.3% risk-free rate, 4.5% equity risk premium) are illustrative; use current market data for real decisions.
How WACC is calculated
The weighted average cost of capital blends the cost of each source of funding by its share of the firm's total market value. The formula is WACC = E/V x Re + D/V x Rd x (1 - Tc), where E and D are the market values of equity and debt, V = E + D, Re is the cost of equity, Rd is the pre-tax cost of debt, and Tc is the corporate tax rate. With $700k of equity at a 9.25% cost and $300k of debt at 6% pre-tax with a 21% tax rate, WACC is 0.7 x 9.25 + 0.3 x 6 x 0.79 = 7.90%.
Equity is more expensive than debt because shareholders are paid last and take the most risk, but the after-tax adjustment on debt narrows the gap: interest is deductible, so each dollar of interest saves tax. Use market values, not book values, for E and D whenever they are available.
The CAPM cost of equity
| Input | What it represents | Typical source |
|---|---|---|
| Risk-free rate (rf) | Return on a default-free investment | 10-year US Treasury yield |
| Beta | How much the stock moves with the market (1.0 = in line) | Regression of stock returns, or a data provider |
| Equity risk premium (ERP) | Extra return investors demand for holding equities | Historical or implied market premium, often 4% to 5.5% |
CAPM says Re = rf + beta x ERP. A beta of 1.1 with a 4.3% risk-free rate and a 4.5% premium gives Re = 4.3 + 1.1 x 4.5 = 9.25%. Higher beta means more risk and a higher required return.
Frequently asked questions
What is WACC used for?
Mainly as the discount rate in DCF valuations and as the hurdle rate for new projects. Cash flows discounted at WACC give the value of the whole firm; projects that return more than WACC create value, and those returning less destroy it.
What is a good WACC?
It depends on risk, not on an absolute benchmark. Stable large-cap companies often run 6% to 9%; riskier businesses can be well above 10%. The meaningful test is whether return on invested capital stays above WACC.
How is the cost of equity estimated with CAPM?
Re = rf + beta x ERP: the risk-free rate plus beta times the equity risk premium. Beta above 1 signals a stock more volatile than the market, which raises the required return. Use the CAPM builder in this calculator to try different inputs.
Why is the after-tax cost of debt used?
Because interest is tax deductible. A 6% loan at a 21% tax rate really costs 6% x (1 - 0.21) = 4.74%. This interest tax shield is built into the WACC formula and is one reason moderate debt can lower the overall cost of capital.
Is this WACC calculator free?
Yes. Free, no sign-up, and every calculation runs locally in your browser. Nothing you type is uploaded.