WACC Calculator
Weighted Average Cost of Capital
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WACC Calculator is built for weighted Average Cost of Capital — fast, free, and private. You supply Market Value of Equity ($), Market Value of Debt ($) and Cost of Equity (%) to WACC; the answer follows at once. The answer from WACC arrives with its working attached. Students and professionals reach for WACC when speed matters. No sign-up is needed for WACC. The math runs on your device. WACC sits in the Finance section next to related tools and wacc calculator weighted average cost of capital. WACC has no learning curve. The fields are labeled. Try WACC now and keep it handy.
The blended cost of capital
WACC = (E ÷ V) × Ke + (D ÷ V) × Kd × (1 − tax). With the defaults — $5m of equity at 12%, $2m of debt at 5%, 25% tax — that is 9.64%.
It is the minimum return a project has to earn to leave shareholders no worse off, which is why it is used as the discount rate in valuation and as the hurdle rate in capital budgeting.
Step by step
Total capital V = $5,000,000 + $2,000,000 = $7,000,000.
Weight of equity = 5 ÷ 7 = 71.43%; weight of debt = 2 ÷ 7 = 28.57%.
After-tax cost of debt = 5% × (1 − 0.25) = 3.75%.
WACC = 0.7143 × 12% + 0.2857 × 3.75% = 8.571% + 1.071% = 9.64%.
Why debt is cheaper
Interest is deductible, so a 5% loan costs 3.75% after tax, and lenders rank ahead of shareholders — their return is more certain, so they accept less. Both effects push the blended rate below the cost of equity.
That does not mean more debt is always better. Adding leverage raises the cost of both equity and debt as risk rises, and the tax shield is only worth the tax rate you actually pay. A company with losses is not getting 25% back.
Worked variation
Same company, but equity costing 15% because of a beta reassessment: 0.7143 × 15% + 0.2857 × 3.75% = 11.79%. A three-point change in the cost of equity moves WACC by 2.1 points, which is why the equity input deserves the most care — it is usually estimated from CAPM, not read off a contract.
Where the estimate breaks
- Market values, not book values. The weights must be market values; using balance-sheet equity understates the equity weight for most firms.
- One rate for the whole firm. WACC is a blend, so applying it to a division with different risk misprices that division’s projects.
- Marginal versus average. For a new project the relevant cost is the marginal cost of raising the next dollar, not the historical average.
- A constant capital structure. The formula assumes the target mix holds; a recapitalisation changes both the weights and the component costs.
Input mistakes
Entering the cost of debt before tax and forgetting the (1 − tax) adjustment overstates WACC. Entering weights as percentages of one component rather than of total capital distorts the blend. And using the coupon rate on old bonds instead of the yield on current debt understates the true cost of borrowing today.
Frequently Asked Questions
Why is the WACC 9.64% and not 8.5%?
The simple average of 12% and 5% ignores both the weights and the tax shield. Equity is 71.4% of capital, debt 28.6%, and debt costs 3.75% after tax — so 0.714 × 12 + 0.286 × 3.75 = 9.64%.
Why is the cost of debt adjusted for tax?
Because interest is deductible. A 5% loan reduces taxable profit, so the effective cost to the company is 5% × (1 − 25%) = 3.75%. The adjustment only applies if the company is actually paying tax.
Should I use book value or market value for equity?
Market value. WACC weights describe how the firm is financed today, and market value of equity often differs sharply from its book value — using book value can invert the weights entirely.
Can I use this WACC for every project?
Only for projects with roughly the firm’s average risk. A new venture in a different industry has its own cost of capital, and discounting it at the company WACC will overvalue risky projects and undervalue safe ones.
What discount rate should I use in a DCF?
WACC, for a cash-flow forecast in the firm’s existing business. The terminal value and the projection period both use it, and the result is highly sensitive — a one-point change in WACC can move a valuation by 15% or more.
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