WACC calculator
Weighted average cost of capital is what a company pays for the money it uses, weighted by how much of each kind it has. Change any input below and every step of the arithmetic changes with it.
The formula
WACC = (E / V) x Re + (D / V) x Rd x (1 - Tc)
E is the market value of equity, D the market value of debt, and V is E plus D. Re is the cost of equity, Rd the cost of debt before tax, and Tc the marginal tax rate. The debt side is multiplied by one minus the tax rate because interest is deductible and dividends are not, so a currency unit of interest costs the company less than a currency unit of return to shareholders.
Illustrative inputs The calculator loads with round numbers chosen to make the arithmetic easy to follow. They are not any company's filed figures. The tax rate is the one real input: 21 percent is the US federal statutory corporate rate. Replace all five with the company you are actually looking at.
Inputs
Shares outstanding times the share price. Not book equity: the market decides what the equity is worth, and the balance sheet records what it cost.
Interest-bearing debt, short and long term. Book value is the usual stand-in because most corporate debt is not quoted, and the error that introduces is small next to the error in the cost of equity.
The return an equity holder requires. It is an estimate, not a filed figure. See the note below on where it comes from and why this page does not compute it for you.
Interest expense over average interest-bearing debt, from the income statement and the balance sheet. The yield on the company's traded bonds is better where there is one.
Interest is deductible and dividends are not, which is the whole reason the debt side is multiplied by (1 minus the tax rate). The US federal statutory rate is 21 percent; a company's effective rate is in its income tax note and is usually different.
| Step | Value |
|---|---|
| Total capital, equity plus debt | 1,000 |
| Equity weight, E divided by V | 80.00% |
| Debt weight, D divided by V | 20.00% |
| After-tax cost of debt, Rd times one minus the tax rate | 3.95% |
| Equity contribution | 7.20% |
| Debt contribution | 0.79% |
| Weighted average cost of capital | 7.99% |
Two of these five are filed. Three are not.
That is the thing worth knowing before you use the answer. The market value of debt and the tax rate can be read out of documents. The market value of equity comes from a price, which is a fact but not a filed one. The cost of debt can be derived from filed figures. The cost of equity cannot be read anywhere at all: it is an estimate, and it is usually the input the whole answer turns on.
| Input | Where it comes from |
|---|---|
| Market value of equity (E) | Shares outstanding times the share price. Share count is on the cover of the annual report and in the equity note. The price is not a filed figure. |
| Market value of debt (D) | Short-term and long-term interest-bearing debt from the balance sheet. Book value stands in for market value because most corporate debt is not quoted, and that approximation is small next to the uncertainty in Re. |
| Cost of equity (Re) | An estimate. Most people build it with the capital asset pricing model: Re = Rf + beta x (Rm - Rf). See the note below on why this page will not do that step for you. |
| Cost of debt (Rd) | Interest expense from the income statement over average interest-bearing debt from two balance sheets. Where the company has traded bonds, their yield to maturity is the better figure, because it is what the market charges now rather than what the company borrowed at years ago. |
| Tax rate (Tc) | The marginal rate, which is the rate that applies to the next currency unit of interest deducted. The US federal statutory corporate rate is 21 percent. A company's effective rate is reconciled to the statutory rate in the income tax note, and the two are rarely the same. |
Why this page asks you for the cost of equity instead of computing it
The capital asset pricing model needs three inputs. The risk-free rate is observable. Beta depends on which index, which period and which frequency of return you measure against, and reasonable choices produce visibly different numbers for the same company. The equity risk premium is not observable at all: it is an estimate of what investors require in excess of the risk-free rate, and the published estimates disagree with one another by more than the number itself moves in a decade.
A calculator that filled in a default premium would be printing a figure we cannot source as though it were one we could, and then hiding it three layers inside an answer you would go on to use. That is exactly the thing this whole product exists to refuse. So the cost of equity is your input, the formula is above, and the assumption stays visible where you put it.
What to do with the number
A cost of capital is an input to a discount rate, and a discount rate is the input a discounted cash flow is most sensitive to. On the illustrative two-stage model worked through in the first link below, one percentage point on the discount rate moves the valuation about three times as far as one percentage point on the five-year growth forecast does. That is worth knowing before you spend an evening on the forecast.
The practical consequence is that a single WACC figure is worth less than a range. Run it at the top and the bottom of what you would defend for the cost of equity, and carry both numbers forward.
- The two numbers that move a DCF most are the two you cannot look up works the sensitivity out in full, so you can see how much of a valuation is the discount rate.
- Cost of capital is the course behind this page: what a discount rate is doing, and where each of these five inputs is actually read from.
- Methodology states which definition the product uses everywhere else, and what it refuses to compute.
Inside the product, the discounted cash flow workbench takes this rate as its input and keeps every figure it touches open: each number expands into the formula that produced it, the filed inputs, the fiscal year and the filing date. It is a subscription and it wants a card for the trial, which is worth saying on a page that has just given you a calculator for nothing. What it costs.
What this leaves out
This is arithmetic on inputs you supply. It is not a valuation, not a view on any security, and not advice. A correct WACC computed from poor estimates is a poor number arrived at carefully.
The formula assumes one cost of equity and one cost of debt for the whole company. A business with materially different divisions, or one funded in several currencies, usually needs more than one, and the single figure this page produces will average them into something that describes none of them.
Book value is used as a stand-in for the market value of debt, which understates the debt weight for a company whose bonds trade well below par. Preference shares, convertibles, leases and minority interests are all forms of capital this formula does not carry, and any of them can be large enough to change the answer.
Nothing you type here is sent anywhere. The arithmetic runs in your browser and no input is stored, logged or transmitted.