WACC Calculator — Weighted Average Cost of Capital
Calculate Weighted Average Cost of Capital (WACC) from equity value, debt value, cost of equity, pre-tax cost of debt, and corporate tax rate.
WACC (Weighted Average Cost of Capital) is the average rate a company is expected to pay to finance its assets, weighted by the proportion of each capital source — equity and debt.
It is one of the most important metrics in corporate finance, used as the discount rate in DCF (Discounted Cash Flow) valuations.
The WACC Formula:
WACC = (E / V) × Re + (D / V) × Rd × (1 - Tc)
Where:
- E = Market value of equity
- D = Market value of debt
- V = E + D (total value of capital)
- Re = Cost of equity (required return for shareholders)
- Rd = Cost of debt (interest rate on borrowings)
- Tc = Corporate tax rate
- E / V = Equity weight (proportion funded by equity)
- D / V = Debt weight (proportion funded by debt)
Why debt is tax-adjusted: Interest payments on debt are tax-deductible in most jurisdictions. This creates a “tax shield” that makes the effective cost of debt lower than the stated interest rate. The factor (1 - Tc) adjusts for this benefit.
Worked Example: Suppose a company has:
- Market value of equity: $60 million (60% of total capital)
- Market value of debt: $40 million (40% of total capital)
- Cost of equity (Re): 10%
- Cost of debt (Rd): 5%
- Corporate tax rate (Tc): 21%
Step 1: Weighted cost of equity: 0.60 × 10% = 6.00% Step 2: After-tax cost of debt: 5% × (1 - 0.21) = 3.95% Step 3: Weighted cost of debt: 0.40 × 3.95% = 1.58% Step 4: WACC = 6.00% + 1.58% = 7.58%
This means the company must earn at least 7.58% on its investments to satisfy both its shareholders and debt holders.
How to find each input:
| Input | Source |
|---|---|
| Market value of equity | Share price × shares outstanding |
| Market value of debt | Total interest-bearing liabilities (balance sheet) |
| Cost of equity | Use CAPM: Rf + β × (Rm - Rf) |
| Cost of debt | Weighted average interest rate on all debt |
| Tax rate | Marginal corporate tax rate |
Common corporate tax rates (2025):
| Country | Rate |
|---|---|
| United States | 21% |
| United Kingdom | 25% |
| Canada | 26.5% |
| Germany | ~30% |
| Australia | 25–30% |
| Japan | ~30% |
| Ireland | 12.5% |
| Singapore | 17% |
Interpreting WACC:
- A lower WACC means cheaper financing: the company can pursue more projects profitably.
- A higher WACC means projects need higher returns to be worthwhile.
- WACC is the hurdle rate in capital budgeting: any project with a return above WACC creates value.
- In DCF models, WACC is used to discount future free cash flows to present value.
Common mistakes:
- Using book value instead of market value for equity and debt weights.
- Using the effective tax rate instead of the marginal tax rate.
- Forgetting to tax-adjust the cost of debt.
- Using a risk-free rate that doesn’t match the cash flow currency.
When to use WACC:
- Valuing a business using DCF analysis
- Evaluating capital budgeting decisions (NPV calculations)
- Comparing financing structures
- Setting hurdle rates for new investments
- M&A analysis and deal structuring