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?
WACC is the blended rate a company pays to all of its capital providers, equity holders and lenders. Its two main uses are as the discount rate in a discounted cash flow (DCF) valuation, where future free cash flows are discounted back to today, and as the hurdle rate that new projects must beat to create value. A project earning more than the WACC adds value; one earning less destroys it.
What is a good WACC?
There is no universal good number, because WACC reflects risk. Large, stable companies with cheap debt often sit in the 6% to 9% range, while smaller or more volatile businesses can be 10% to 15% or higher. The useful comparison is against the return on invested capital: a company whose ROIC consistently exceeds its WACC is creating value.
How is the cost of equity estimated with CAPM?
The Capital Asset Pricing Model sets the cost of equity as Re = rf + beta x ERP, where rf is the risk-free rate (usually a 10-year government bond yield), beta measures the stock's sensitivity to the overall market, and ERP is the equity risk premium investors demand for holding stocks instead of risk-free bonds. A beta of 1.1 means the stock tends to move 10% more than the market.
Why is the after-tax cost of debt used in WACC?
Interest payments on debt are tax deductible, so the government effectively subsidises part of the borrowing cost. If a company pays 6% interest and its tax rate is 21%, the true cost of that debt is 6% x (1 - 0.21) = 4.74%. This saving is called the interest tax shield, and it is why debt usually lowers WACC, up to the point where extra leverage starts raising the risk of financial distress.
Is this WACC calculator free?
Yes. It is completely free, requires no sign-up, and all calculations run locally in your browser. No figures you enter are uploaded anywhere.