WACC Calculator
Calculate the weighted average cost of capital from equity and debt.
About the WACC Calculator
Enter the market values of equity and debt, the risk-free rate, the equity beta, the equity risk premium, the pre-tax cost of debt and the tax rate. The calculator gives WACC, the cost of equity (by CAPM) and the after-tax cost of debt, with their weights.
WACC is the average return a company must pay its investors, weighted by market values. Debt is cheaper after tax because interest is deductible.
The formula
WACC = E/V × Re + D/V × Rd × (1 − tax); Re = Rf + β × ERP
Worked example
Equity 600m, debt 400m; risk-free 4.2%, beta 1.1, premium 5%; debt at 6%, tax 21%
- Cost of equity: 4.2 + 1.1 × 5 = 9.7%
- After-tax cost of debt: 6 × 0.79 = 4.74%
- WACC = 0.6 × 9.7 + 0.4 × 4.74 = 7.72%
Questions people ask
Which risk-free rate?
Usually the 10-year government bond yield in the company's currency.
Where does beta come from?
Regression of the stock's returns against the market, or industry averages.
What is WACC used for?
As the discount rate in NPV and DCF valuations: projects should earn more than it.