Calculate weighted average cost of capital from equity and debt
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 equity and debt in its capital structure. It's used as the discount rate in valuation models and as the minimum acceptable return (hurdle rate) for new investment projects.
WACC = (E/V × Re) + (D/V × Rd × (1 − Tc)), where V = E + D
| Calculation | Expression | Result |
|---|---|---|
| 60% equity, 40% debt | Re 12%, Rd 6%, tax 21% | WACC ≈ 9.1% |
| After-tax cost of debt | 6% × (1 − 21%) | 4.74% |
WACC is most commonly used as the discount rate in valuation models (like DCF) to find the present value of future cash flows, and as a company's minimum acceptable return (hurdle rate) when evaluating whether to accept a new investment project.
Market value reflects what equity and debt are actually worth today, which is what investors and creditors are truly owed or invested — book value (accounting value) can be significantly out of date, especially for equity, whose market value often differs greatly from its balance-sheet value.
Because interest payments on debt are tax-deductible, the government effectively subsidizes part of the interest cost — multiplying by (1 − tax rate) reflects the true after-tax cost of borrowing, which is lower than the stated interest rate.
The most common method is CAPM (Capital Asset Pricing Model): Cost of Equity = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate). This calculator lets you enter your own estimate directly.
A high WACC means the company faces a higher cost to raise capital (through both equity and debt), which raises the bar for what returns any new investment must clear to be worthwhile — often reflecting higher perceived risk by investors and lenders.