Cost of Capital (WACC) Calculator
The blended hurdle rate for the whole company.
Weighted average cost of capital
Estimates for planning only, not financial advice.
WACC blends what shareholders demand and what lenders charge into one hurdle rate for the company. With $600,000 of equity at a 10% cost, $400,000 of debt at 5%, and a 21% tax rate, the math is 60% x 10% + 40% x 5% x (1 - 0.21) = 6% + 1.58% = 7.58%. Every project earning above 7.58% creates value; everything below destroys it. This calculator builds WACC from market values and shows each component\'s contribution.
How to Use This Calculator
Enter the market value of equity (market capitalization for public companies) and the market value of debt (book value is an acceptable proxy when bonds do not trade). Enter the cost of equity from CAPM or your estimate, the pre-tax cost of debt (current borrowing rate or bond yield), and the marginal corporate tax rate. The results show WACC, the equity and debt weights, the after-tax cost of debt, and each side\'s contribution to the blend.
Enter market values of equity and debt. Market cap plus traded debt values, not book equity.
Enter cost of equity (from our CAPM calculator), pre-tax cost of debt, and the tax rate.
Read WACC and use it as the discount rate in valuations and the hurdle for projects matching company risk.
The WACC Formula
The formula\'s economics are straightforward: each capital provider must earn their required return, and the company\'s overall cost is the weighted average. The tax adjustment is the only subtlety, and it is real money: at 21% tax, a 5% loan truly costs 3.95% after the deduction. Note what the formula assumes: that the capital structure stays roughly constant and that the weights reflect the financing of new investments, which is why market values, not historical book values, are correct.
Worked Example
A company has $600,000 of equity market value and $400,000 of debt: total value $1,000,000, weights 60% equity and 40% debt. Cost of equity is 10%, cost of debt is 5%, tax rate 21%. After-tax cost of debt: 5% x 0.79 = 3.95%. Equity contribution: 0.60 x 10% = 6.00%. Debt contribution: 0.40 x 3.95% = 1.58%. WACC: 7.58%. A proposed expansion projected to earn 11% clears the hurdle and creates value; a 6% project destroys it. If the company doubled its debt at the same 5% rate, weights shift to 43% equity and 57% debt, and WACC falls to about 6.55%, before adjusting for the higher equity risk debt creates.
WACC Benchmarks
| Company type | Typical WACC | Why |
|---|---|---|
| Large-cap stable | 6 to 9% | Low beta, cheap debt access |
| Mid-cap growth | 9 to 12% | Higher beta, moderate debt |
| Small / risky | 12 to 18% | High beta, expensive or no debt |
The most common WACC error is using book equity, which understates equity weight for successful companies and produces a WACC that is too low, flattering every valuation built on it. The second is a stale cost of debt: use today\'s borrowing rate, not the coupon on decade-old bonds. For the inputs and next steps, our CAPM calculator estimates the cost of equity, our cost of equity calculator cross-checks it via dividends, and our business valuation calculator discounts cash flows at the resulting WACC.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is WACC?
The weighted average cost of capital is a company's blended cost of financing: the average of what equity investors demand and what debt costs after tax, weighted by how much of each the company uses. With $600,000 of equity at 10%, $400,000 of debt at 5%, and a 21% tax rate, WACC is 0.6 x 10% + 0.4 x 5% x 0.79 = 7.58%. It is the hurdle rate for investments and the discount rate for valuing the firm.
What is the WACC formula?
WACC = (E/V) x Re + (D/V) x Rd x (1 - tax rate), where E is market value of equity, D is market value of debt, V = E + D, Re is cost of equity, and Rd is cost of debt. The (1 - tax) term reflects that interest is tax-deductible, making debt cheaper than its headline rate. Use market values for the weights, not book values.
Why is debt multiplied by (1 - tax rate)?
Because interest payments are tax-deductible in most countries, the government effectively subsidizes part of the interest cost. At a 5% interest rate and 21% tax, the after-tax cost is 5% x 0.79 = 3.95%. This tax shield is a genuine advantage of debt financing and a major reason companies borrow even when they could fund with equity.
Should WACC use book or market values?
Market values. WACC prices the cost of raising the next dollar of capital, and investors price off market values: the stock market capitalization for equity and the market price of bonds for debt. Book equity can be a fraction of market cap for successful companies, which would wildly overweight debt. When market values are unavailable, book values are a fallback, not the preference.
How is WACC used in valuation?
As the discount rate in a discounted cash flow model of the whole firm: project free cash flows to the firm and discount at WACC to get enterprise value. Because WACC reflects the blended required return of all capital providers, it is the right rate for cash flows belonging to all of them. Using the cost of equity instead would undervalue the firm by ignoring cheap debt.
What is a good WACC?
Lower is generally better for valuations (it raises present values) but it reflects risk, not virtue. Large stable companies run 6% to 9%; smaller or riskier firms run 10% to 15%+. Compare against return on invested capital: ROIC above WACC means the company creates value; below means it destroys it. The spread between ROIC and WACC is the single best summary of corporate performance.
How does debt affect WACC?
Adding cheap debt initially lowers WACC because debt costs less than equity and the interest is deductible. But more debt raises equity risk, pushing the cost of equity up, and beyond some point the rising equity cost and bankruptcy risk outweigh the cheap debt. The result is a U-shaped curve with an optimal capital structure at the bottom. Most mature companies operate well left of the danger zone.
What discount rate should a project use?
The company's WACC if the project matches the company's risk profile; a project-specific rate if it does not. A risky R&D venture inside a stable utility should be discounted above the corporate WACC, and a safe cost-saving project below it. Using one corporate rate for everything systematically overinvests in risky projects and underinvests in safe ones.
How do you estimate the cost of equity for WACC?
Usually with CAPM: risk-free rate plus beta times the market risk premium. Our CAPM calculator produces it from three inputs. Alternatives include the dividend discount model (for stable dividend payers) and the bond-yield-plus-risk-premium method. Cross-check two methods when the valuation matters: cost of equity is typically the most sensitive WACC input.
Does WACC change over time?
Constantly, as market values move, interest rates shift, and betas drift. Practitioners usually compute a current WACC and hold it steady over the forecast, or build a schedule for major capital structure changes like LBOs. For acquisition modeling, use the target's WACC for standalone value and the acquirer's for combined value, since the capital structure (and often the risk) changes hands.