WACC Calculator
This WACC calculator finds your company's weighted average cost of capital — the blended return rate that satisfies both equity and debt investors, and the standard discount rate used to evaluate whether a company's investments create value. Enter your capital structure and cost of each to see your WACC.
Total market capitalization, or your best estimate of equity value.
Total interest-bearing debt outstanding.
The return equity investors require — often estimated via CAPM.
The interest rate on your debt, before the tax shield.
Interest is tax-deductible, so debt's after-tax cost is lower than its stated rate.
WACC
9.50%
The blended rate a company must earn on its investments to satisfy both equity and debt holders.
How to use this wacc calculator
- 1Market value of equity and debt: use current market values where available, not book (accounting) values, for the most accurate weights.
- 2Cost of equity: the return equity investors require — often estimated using the Capital Asset Pricing Model (CAPM) or a comparable-company benchmark.
- 3Cost of debt and tax rate: your interest rate on debt, and your corporate tax rate — since interest is tax-deductible, debt's real cost to the company is lower than its stated rate.
Understanding your results
WACC is the minimum return a company's investments need to generate to satisfy both its equity and debt holders combined — it's the standard discount rate used in NPV analysis for company-level investment decisions. After-tax cost of debt is lower than the stated interest rate because interest payments reduce taxable income, a real benefit debt has over equity.
The formula
WACC = (Equity weight × Cost of equity) + (Debt weight × Cost of debt × (1 − Tax rate))Each capital source (equity and debt) contributes to WACC in proportion to its share of total company value, weighted by its own required return. Debt's contribution is reduced by the tax shield — since interest is tax-deductible, only the after-tax cost of debt is used, making debt genuinely cheaper than equity financing on a like-for-like basis in most cases.
A worked example
A company with $800,000 in equity and $400,000 in debt (a 66.7%/33.3% split), a 12% cost of equity, 6% cost of debt, and a 25% tax rate: after-tax cost of debt is 4.5% (6% × 0.75). WACC comes to (0.667 × 12%) + (0.333 × 4.5%) ≈ 9.5% — the blended hurdle rate the company's investments need to clear.
Notes for the UK, US and India
WACC is typically used as the discount rate in company-level NPV analysis, and as a benchmark hurdle rate for evaluating new investments or acquisitions — a project expected to return less than WACC generally destroys shareholder value even if it's profitable in an absolute sense.
Frequently asked questions
Why is debt usually cheaper than equity?+
Debt holders take less risk than equity holders (they're paid before shareholders and have contractual interest payments), so they require a lower return — and interest is tax-deductible, further lowering debt's effective cost to the company.
Should I use book value or market value for the weights?+
Market value is theoretically correct and standard practice — book (accounting) values can be significantly outdated, especially for equity, where market capitalization often differs substantially from balance-sheet book value.
How is cost of equity usually estimated?+
The Capital Asset Pricing Model (CAPM) is the most common approach: risk-free rate plus the company's beta times the equity market risk premium — a more advanced calculation this calculator doesn't perform, so you'll need that estimate as an input here.
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