WACC Calculator
What is your company's cost of capital for investment decisions? Calculate WACC, see how equity and debt contribute, or run a sensitivity analysis on key assumptions. Works with any currency.
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How to Use This Calculator
Tab "Calculate WACC"
Enter the market value of equity, cost of equity (expected return demanded by shareholders), market value of debt, cost of debt (pre-tax interest rate), and corporate tax rate. The result shows your Weighted Average Cost of Capital as a percentage.
Tab "Component Breakdown"
Same inputs as Tab 1. The result breaks WACC into its equity and debt components, showing the weight of each, the after-tax cost of debt, and the tax shield benefit. Use this to understand where your cost of capital comes from.
Tab "Sensitivity"
Enter your base inputs, then choose which variable to test: cost of equity, debt ratio, or tax rate. The calculator shows how WACC changes as that input moves up and down, while holding everything else constant. Use this to assess how sensitive your cost of capital is to key assumptions.
The Formula
WACC = (E/V × Re) + (D/V × Rd × (1 − T))
Where:
E = Market value of equity
D = Market value of debt
V = E + D (total firm value)
Re = Cost of equity (expected return on equity)
Rd = Cost of debt (pre-tax interest rate)
T = Corporate tax rate
After-tax cost of debt:
After-tax Rd = Rd × (1 − T)
Weight of equity: E / V
Weight of debt: D / V
WACC represents the minimum return a company must earn on its existing assets to satisfy its creditors, owners, and other providers of capital. It is the blended cost of all sources of financing, weighted by their proportion in the capital structure.
Worked Examples
Example 1 — Standard capital structure: 60/40 equity-debt
A company has $60M in equity (shareholders expect 12% return) and $40M in debt (6% interest rate). The corporate tax rate is 25%.
The company must earn at least 9.00% on its investments to satisfy both shareholders and creditors. Any project with a return above 9% creates value.
Example 2 — High leverage: 40/60 equity-debt
Same company, but with more debt: $40M in equity and $60M in debt. Cost of equity and debt remain the same.
Higher leverage lowers WACC from 9.00% to 7.50% because more of the capital structure uses cheaper, tax-advantaged debt. However, excessive leverage increases financial risk.
Example 3 — Sensitivity: varying the tax rate
Using Example 1 inputs (60/40 equity-debt, Re=12%, Rd=6%), how does WACC change when the tax rate varies?
Higher tax rates lower WACC because the tax shield on debt is more valuable. A 10 percentage point increase in tax rate (20% to 30%) reduces WACC by 0.24 percentage points in this example.
Understanding WACC
What Is WACC?
The Weighted Average Cost of Capital (WACC) is the average rate of return a company must pay to its investors — both equity holders and debt holders — weighted by how much of each type of financing is used. It serves as a hurdle rate for investment decisions: a project should only be pursued if its expected return exceeds the WACC.
Why Does WACC Matter?
WACC is central to corporate finance. It is used as the discount rate in Discounted Cash Flow (DCF) valuations, the benchmark for capital budgeting decisions, and the threshold for measuring Economic Value Added (EVA). A lower WACC means the company can create value from a wider range of projects.
Cost of Equity vs Cost of Debt
Cost of equity is the return investors expect for bearing the risk of owning the company's stock. It is typically estimated using CAPM (Capital Asset Pricing Model). Cost of debt is the interest rate the company pays on its borrowings. Debt is almost always cheaper than equity because: (1) debt holders have priority in bankruptcy, so they accept lower returns, and (2) interest payments are tax-deductible.
The Tax Shield
Interest payments on debt reduce taxable income, which lowers the effective cost of debt. This is why the WACC formula uses after-tax cost of debt: Rd × (1 − T). The difference between pre-tax and after-tax cost of debt is the tax shield, which makes debt financing attractive up to a point.
Limitations
WACC assumes: (1) the capital structure remains constant, (2) the cost of each component stays the same regardless of how much is used, and (3) the marginal tax rate applies. In practice, adding more debt eventually increases both the cost of debt (higher default risk) and the cost of equity (financial leverage risk). WACC is best used as a starting point, not a precise figure.