Online WACC Calculator
Calculate Weighted Average Cost of Capital (WACC) for your business. Essential for investment decisions, valuation, and capital budgeting.
Expected return on equity
Interest rate on debt
Corporate tax rate
What is WACC?
WACC (Weighted Average Cost of Capital) is the average rate a company expects to pay to finance its assets. It represents the minimum return a company must earn on its investments to satisfy its shareholders and creditors.
WACC is calculated by weighting the cost of equity and cost of debt by their respective proportions in the company's capital structure, adjusted for the tax benefit of debt.
How to Use the WACC Calculator
- Enter equity value: Input the total market value of equity (shares outstanding × share price).
- Enter debt value: Input the total market value of debt (loans, bonds, etc.).
- Enter cost of equity: Input the expected return on equity (often estimated using CAPM or dividend growth model).
- Enter cost of debt: Input the interest rate on debt (average interest rate on all debt).
- Enter tax rate: Input the corporate tax rate (used to calculate tax shield benefit).
- Calculate: Click "Calculate WACC" to see your weighted average cost of capital.
Understanding WACC
WACC Formula
WACC = (E/V × Re) + (D/V × Rd × (1 - Tc)), where E = equity value, D = debt value, V = total capital, Re = cost of equity, Rd = cost of debt, and Tc = tax rate.
Why WACC Matters
WACC is used as a discount rate in valuation models, capital budgeting decisions, and to evaluate investment opportunities. Projects with returns above WACC create value.
Tax Shield
The tax benefit of debt is reflected in the (1 - Tc) term, which reduces the effective cost of debt because interest payments are tax-deductible.
Frequently Asked Questions
What's a good WACC?
WACC varies by industry and company. Generally, 8-12% is common for many companies, though it can range from 5% (stable utilities) to 15%+ (high-risk startups). Lower WACC indicates cheaper capital.
How do I estimate cost of equity?
Cost of equity is often estimated using the Capital Asset Pricing Model (CAPM): Re = Rf + β × (Rm - Rf), where Rf is risk-free rate, β is beta, and Rm is market return.
Why is debt cheaper than equity?
Debt is typically cheaper because it has priority in bankruptcy, interest is tax-deductible, and lenders take less risk than equity investors. However, too much debt increases financial risk.
How is WACC used in valuation?
WACC is used as the discount rate in DCF (Discounted Cash Flow) models to calculate the present value of future cash flows, helping determine company or project value.
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