WACC Calculator (Weighted Average Cost of Capital)

Enter your company's equity value, debt value, and cost of each to calculate the Weighted Average Cost of Capital (WACC).

WACC Calculator

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Market value of equity ($)

Market value of debt ($)

Cost of equity (%, e.g. from CAPM)

Cost of debt (%, pre-tax interest rate)

Corporate tax rate (%)

Total capital	$1,000,000.00
Equity weight	60.0%
Debt weight	40.0%
After-tax cost of debt	4.50%
WACC	9.00%

Use MARKET values, not book values, for equity and debt where possible. WACC is commonly used as the discount rate in NPV analysis for average-risk projects.

The formula

WACC = (E/V x Re) + (D/V x Rd x (1 - Tax rate)) E = market value of equity, D = market value of debt, V = E + D Re = cost of equity, Rd = cost of debt (pre-tax)

Example

$600,000 equity, $400,000 debt (60%/40% weights), 12% cost of equity, 6% cost of debt, 25% tax rate: after-tax cost of debt of 4.5%, weighted together for a WACC of 9.00%.

Step-by-step guide

Find market values of equity and debt - for public companies, equity is share price times shares outstanding; for private companies, this often requires an estimate.
Estimate cost of equity - commonly derived from CAPM (risk-free rate + beta x market risk premium).
Enter cost of debt and tax rate - debt gets a tax benefit that equity doesn't, since interest is tax-deductible, which is why it's adjusted by (1 - tax rate).

Why debt gets a "tax shield" but equity doesn't

This asymmetry is one of the most important concepts in corporate finance and directly affects how much debt versus equity a company chooses to use. Interest paid on debt is a tax-deductible business expense, which effectively means the government subsidizes part of the cost of borrowing - a company paying 6% interest with a 25% tax rate is really only bearing a 4.5% after-tax cost, since the interest deduction reduces the company's tax bill. Dividends paid to equity holders, by contrast, are NOT tax-deductible for the company. This is a core reason companies often use some amount of debt financing rather than funding entirely with equity, even though debt also introduces bankruptcy risk that pure equity financing doesn't carry.

Common mistakes

Using book value of equity from the balance sheet instead of market value - for a publicly traded company, market capitalization (share price x shares outstanding) is the correct figure, and it often differs substantially from book value.

Forgetting to apply the tax shield to the cost of debt - entering the pre-tax interest rate directly into the weighted average overstates the true cost of debt financing.

Frequently asked questions

What is WACC actually used for?

Most commonly as the discount rate in NPV and DCF valuation analysis for average-risk projects, and as a benchmark "hurdle rate" that a project's expected return must clear to be considered worthwhile.

Why does cost of equity require a model like CAPM instead of a simple observable rate?

Unlike debt, which has an observable, contractual interest rate, equity holders have no guaranteed return - CAPM (or similar models) estimates the return shareholders should reasonably require given the stock's risk level, since there's no stated "interest rate" on equity.

Should preferred stock be included as debt or equity in WACC?

Preferred stock is typically treated as its own separate third component in a full WACC calculation, since it has characteristics of both debt (fixed dividend) and equity (no maturity date), though many simplified calculations combine it with common equity.

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