WACC Calculator

The weighted average cost of capital (WACC) is the blended rate a company pays to fund itself, mixing what it owes shareholders with what it owes lenders. Analysts use it as the discount rate in DCF models and as the hurdle rate for new projects. Small moves in WACC produce large swings in valuation, which is why getting the inputs right matters more than the formula itself.

Cost of equity vs. cost of debt

The two sides of WACC behave very differently. Cost of equity is the return shareholders expect for taking on the risk of owning the company, usually estimated with the Capital Asset Pricing Model (CAPM). Cost of debt is more concrete: it's the yield on existing bonds, or whatever rate the company would pay to issue new debt today. Because interest payments are tax-deductible, the cost of debt is multiplied by (1 − T) to capture the tax shield. That deduction is the reason profitable companies often lean on debt to bring their overall WACC down.

How to use this calculator

Enter the market value of your equity and debt, the cost of each, and your corporate tax rate. The calculator solves for WACC using:

Here E is equity, D is debt, $R_e$ is cost of equity, $R_d$ is cost of debt, and $T$ is the tax rate. You can also work backward. Plug in WACC and any four of the inputs, and the calculator solves for the missing one. That's useful when you already know a target return and want to figure out what cost of equity or debt level would justify it.

Where WACC actually gets used

DCF valuation is the big one. The discount rate in any cash-flow model is almost always WACC (or some adjusted version of it), and even a 50 basis point shift can move enterprise value by double digits. Project teams use it as a hurdle rate: if the expected IRR doesn't clear WACC, the project isn't earning its cost of capital no matter how good the deck looks. Cross-company comparisons matter too. A WACC of 7% for one company and 12% for a competitor says something real about how the market is pricing their respective risks.

Getting the inputs right

Use market values for both equity and debt. Equity market value is share price times shares outstanding, straight off the screen. Debt is trickier: if the bonds trade, use market prices; if not, take book value and adjust for current rates. For the tax rate, use the marginal rate, not the effective rate, because WACC is forward-looking and the marginal rate is what applies to the next dollar of income. And rebuild WACC whenever the capital structure shifts materially, not once a year out of habit.

FAQ

Why is the cost of debt tax-adjusted?

Interest payments are deductible, so each dollar of interest only costs the company (1 − T) dollars after taxes. The (1 − T) multiplier in the formula captures that tax shield directly.

What's a typical WACC range?

Most established companies land somewhere between 5% and 15%. Mature utilities sit near the bottom, growth-stage tech and biotech firms sit near the top, and distressed credits or highly leveraged situations can run past either end.

Book value or market value?

Market values, every time. Book values reflect what accountants recorded when the equity was issued or the debt was taken on; market values reflect what investors require today, which is what WACC is meant to measure.