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WACC Calculator

Find your weighted average cost of capital in seconds

🏦 Capital structure & rates

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Total capital (V) = $1,000,000 · Equity weight 70.0% · Debt weight 30.0%
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Last updated June 2026

Method: Uses the standard textbook WACC formula, WACC = (E/V) × Re + (D/V) × Rd × (1 − Tc), with weights derived from the market values you enter and an after-tax cost of debt.

Included: Equity and debt weights, after-tax cost of debt, the tax-shield benefit, the pre-tax WACC for comparison, debt-to-equity ratio and a component breakdown table.

Not included: Preferred stock as a separate source, flotation costs, country or currency adjustments, and the underlying CAPM estimate of the cost of equity (you supply Re directly).

WACC calculator: everything you need to know

A company financed with $700,000 of equity and $300,000 of debt - paying 9% to its shareholders and 5% on its loans, at a 21% tax rate - has a weighted average cost of capital of about 7.49%. That single number is one of the most important figures in corporate finance: it is the blended rate the business must earn just to satisfy everyone who funds it. This WACC calculator turns your capital structure and cost assumptions into that rate instantly, and shows the equity and debt weights behind it.

What WACC means

WACC stands for weighted average cost of capital. A firm raises money in two main ways - selling ownership (equity) and borrowing (debt) - and each source demands a different return. Shareholders expect a higher return because they bear more risk; lenders accept less because they are paid first and their interest is tax-deductible. WACC weighs each source by how much of it the company uses, producing the single average rate the whole company effectively pays for its capital.

The WACC formula

The weighted average cost of capital is calculated as:

WACC = (E / V) × Re + (D / V) × Rd × (1 − Tc)

where E is the market value of equity, D is the market value of debt, V = E + D is total capital, Re is the cost of equity, Rd is the cost of debt, and Tc is the corporate tax rate. The fractions E/V and D/V are the weights - the share of financing from each source - and they always add up to 100%. The (1 − Tc) term reduces the cost of debt because interest is tax-deductible, a benefit known as the tax shield.

How to use this WACC calculator

You need five inputs, all of which a finance team can usually source from a company's filings and market data:

  1. Market value of equity (E): for a public company, this is market capitalization - share price × shares outstanding. For a private firm, use a recent valuation.
  2. Market value of debt (D): the current market value of interest-bearing debt (bonds and loans). Book value is a fair proxy if rates have not moved much since issuance.
  3. Cost of equity (Re): the return shareholders require, often estimated with CAPM (risk-free rate + beta × equity risk premium).
  4. Cost of debt (Rd): the average interest rate the company pays on its debt, before tax.
  5. Corporate tax rate (Tc): the marginal tax rate that applies to the interest deduction - the U.S. federal corporate rate is 21%.

The calculator instantly returns the WACC, the equity and debt weights, the after-tax cost of debt, and a breakdown of how much each source contributes to the final rate.

Who this calculator is for

WACC sits at the center of valuation and capital-budgeting decisions, so it is used by a wide range of people:

  • Finance students checking homework and exam answers against a reliable formula.
  • Analysts and investors building discounted cash flow (DCF) models who need a discount rate.
  • Founders and CFOs deciding whether a project clears the company's hurdle rate.
  • Corporate development teams evaluating acquisitions and the cost of different financing mixes.
  • Anyone comparing financing options who wants to see how more debt or more equity moves the blended cost.

Worked example 1: the default case

Take the calculator's defaults: E = $700,000, D = $300,000, so V = $1,000,000. The weights are 70% equity and 30% debt. With Re = 9%, Rd = 5%, and Tc = 21%, the after-tax cost of debt is 5% × (1 − 0.21) = 3.95%. Plugging in: (0.70 × 9%) + (0.30 × 3.95%) = 6.30% + 1.185% = 7.49% WACC. The equity side contributes 6.30 points and the (cheaper, tax-shielded) debt side adds just under 1.2 points.

Worked example 2: more leverage

Now flip the mix to 50% equity / 50% debt (E = D = $500,000), keeping the same rates. After-tax debt is still 3.95%. WACC = (0.50 × 9%) + (0.50 × 3.95%) = 4.50% + 1.975% = 6.48%. Because debt is cheaper than equity, leaning on more debt pulled the blended rate down by about a full percentage point. In reality, pushing leverage this far would likely raise both Re and Rd as risk rises - the formula assumes the costs stay fixed, which is why judgment matters.

Worked example 3: no tax shield

Set the tax rate to 0% on the default capital structure. Now the after-tax cost of debt equals the pre-tax cost (5%), and WACC = (0.70 × 9%) + (0.30 × 5%) = 6.30% + 1.50% = 7.80%. Compared with the 7.49% in example 1, the missing tax shield costs about 0.31 percentage points. This is exactly the value the deductibility of interest adds - and why debt looks even cheaper for highly profitable, fully taxed companies.

Estimating the cost of equity with CAPM

The trickiest input is the cost of equity (Re), because - unlike an interest rate on a loan - shareholders never write down the return they require. The standard way to estimate it is the Capital Asset Pricing Model (CAPM):

Re = Rf + β × (Rm − Rf)

Here Rf is the risk-free rate (usually the 10-year U.S. Treasury yield), β (beta) measures how much the stock moves relative to the overall market, and (Rm − Rf) is the equity risk premium - the extra return investors demand for holding stocks instead of risk-free bonds. Suppose the risk-free rate is 4.3%, the equity risk premium is 5%, and the company's beta is 1.1. Then Re = 4.3% + 1.1 × 5% = 9.8%. A beta above 1 means the stock is more volatile than the market and so carries a higher cost of equity; a beta below 1 means it is steadier and cheaper to finance with equity. You feed the resulting Re straight into the calculator above, so it is worth sanity-checking your beta and risk premium before trusting the WACC.

WACC vs. cost of equity, IRR and the discount rate

WACC is easy to confuse with the other rates that show up in valuation. Keeping them straight matters because using the wrong one can flip a "yes" decision into a "no":

  • WACC vs. cost of equity: the cost of equity is only what shareholders require; WACC blends it with the after-tax cost of debt. WACC is always less than or equal to the cost of equity whenever debt is cheaper than equity.
  • WACC vs. the discount rate: WACC is the most common discount rate, but they are not synonyms. The discount rate is whatever rate you use to bring future cash flows to present value; for a firm or average-risk project that rate is usually WACC, but a riskier project deserves a higher one.
  • WACC vs. IRR: the internal rate of return (IRR) is the return a project actually generates, while WACC is the hurdle it must clear. A project adds value when IRR exceeds WACC. You can pair this tool with an ROI calculator to gauge a project's return against its cost of capital.
  • WACC vs. the cost of debt: the cost of debt is just one ingredient; WACC is the whole recipe. Because interest is tax-deductible, the after-tax cost of debt that enters WACC is lower than the rate the company actually pays.

Using WACC as a discount rate in a DCF

The single most common use of WACC is as the discount rate in a discounted cash flow (DCF) valuation. In a DCF you forecast a company's free cash flows for several years, then divide each year's cash flow by (1 + WACC) raised to the number of years out. A cash flow of $1,000,000 received in five years, discounted at a 7.49% WACC, is worth $1,000,000 ÷ (1.0749)5 ≈ $697,000 today. Sum the discounted cash flows (plus a discounted terminal value) and you have an estimate of what the business is worth. Because every year is divided by a power of (1 + WACC), the choice of WACC compounds: lowering it from 9% to 8% can lift a valuation by 10% or more, which is why analysts run a sensitivity table across a range of WACC values rather than betting on a single point. If you are working back from a target return on an investment instead, the compound interest calculator illustrates the same time-value math from the saver's side.

What is a good WACC by industry?

There is no universal "good" WACC - the right benchmark is a company's own industry and risk profile. As a rough orientation, low-risk, capital-intensive sectors tend to sit at the bottom of the range while high-growth, volatile sectors sit at the top:

Sector type Typical WACC range Why
Regulated utilities~4%–7%Stable cash flows, heavy low-cost debt, low beta
Consumer staples & large industrials~6%–9%Predictable demand, moderate leverage
Mature technology & healthcare~8%–11%Higher beta, lighter debt, more growth risk
Early-stage / high-growth firms~12%–20%+Volatile cash flows, little or no cheap debt

Treat these as illustrative orientation, not precise figures: actual WACC depends on prevailing interest rates, each company's leverage, and its specific beta. The takeaway is that a 6% WACC is unremarkable for a utility but unrealistically low for a startup, so always compare against peers of similar size and risk rather than a single headline number.

Reference: where each input usually comes from

Input Symbol Typical source
Market value of equityEShare price × shares outstanding (market cap)
Market value of debtDBond/loan market value; book value as a proxy
Cost of equityReCAPM: risk-free + beta × equity risk premium
Cost of debtRdWeighted average interest rate on debt (yield to maturity)
Tax rateTcMarginal corporate tax rate (21% U.S. federal)

Why WACC matters

WACC plays two big roles. First, it is the discount rate in a DCF valuation: future cash flows are discounted back to present value using WACC, so a small change in the rate can swing a valuation materially. Second, it is a hurdle rate for capital budgeting - a project of average risk should only proceed if its expected return beats the WACC. Earning more than WACC creates value for investors; earning less destroys it.

Key terms explained

  • Cost of equity (Re): the return shareholders require, reflecting their risk; usually the largest and least certain input.
  • Cost of debt (Rd): the effective interest rate on borrowings, before the tax benefit.
  • After-tax cost of debt: Rd × (1 − Tc); the real cost of debt once the interest deduction is counted.
  • Tax shield: the value created by interest being tax-deductible, which lowers WACC.
  • Capital structure: the mix of debt and equity a company uses; the source of the E/V and D/V weights.
  • Debt-to-equity (D/E): a leverage ratio that summarizes how aggressively a company is financed with debt.

What moves WACC the most

  • Cost of equity: usually the heaviest weight and the largest rate, so changes in Re move WACC most.
  • Capital mix: shifting toward cheaper debt lowers WACC - up to the point where rising risk reverses the benefit.
  • Cost of debt: rises and falls with interest rates and the company's credit quality.
  • Tax rate: a higher tax rate makes the debt tax shield more valuable, lowering WACC.

Limitations and assumptions

WACC is a powerful shorthand, but it rests on simplifications worth remembering:

  • It assumes fixed costs of capital at the mix you enter; in reality Re and Rd rise as leverage grows.
  • It reflects the firm's average risk, so it is the wrong discount rate for unusually risky or safe projects.
  • The cost of equity is an estimate (often via CAPM), and reasonable analysts can disagree by a point or more.
  • The two-source version here ignores preferred stock; add a (P/V) × Rp term if it is material.
  • It is a point-in-time figure - market values, rates and tax law all change.

Related concepts and tools

WACC connects to several other business and finance calculations:

Sources

⚠️ Common mistakes & edge cases

Using book values instead of market values

WACC weights should reflect what equity and debt are worth today, not their accounting book values. A company whose stock trades far above book will get a badly skewed WACC if you use balance-sheet equity. Use market cap for E and market value of debt for D.

Forgetting the tax shield on debt

The cost of debt must be multiplied by (1 − Tc). Skipping the (1 − Tc) term overstates WACC and undervalues the benefit of interest deductibility - a common error that makes debt look more expensive than it really is.

Applying WACC to a project of different risk

WACC reflects the firm's average risk. Using it to discount an unusually risky venture sets the hurdle too low; using it on a very safe one sets it too high. Match the discount rate to the project's risk, not just the company's.

Treating WACC as a fixed constant

WACC is not permanent. Market values shift daily, interest rates and credit quality change the cost of debt, and adding leverage eventually raises both Re and Rd. Re-estimate WACC when the inputs move, rather than reusing an old number.

Note: This calculator gives an estimate for planning and study, not investment or accounting advice. The output is only as good as your cost-of-capital assumptions.

❓ Frequently asked questions

What is WACC?

WACC stands for weighted average cost of capital. It is the average rate a company expects to pay to finance its assets, blending the cost of equity and the after-tax cost of debt in proportion to how much of each it uses. WACC is the most common discount rate for valuing a whole company or a project of average risk.

What is the WACC formula?

WACC = (E/V) x Re + (D/V) x Rd x (1 - Tc), where E is the market value of equity, D is the market value of debt, V = E + D is total capital, Re is the cost of equity, Rd is the cost of debt, and Tc is the corporate tax rate. The (1 - Tc) term reflects that interest on debt is tax-deductible.

Why is the cost of debt multiplied by (1 - tax rate)?

Interest payments are tax-deductible, so each dollar of interest reduces taxable income and saves the company tax at its marginal rate. Multiplying the cost of debt by (1 - Tc) captures this tax shield, giving the after-tax cost of debt, which is the true economic cost of borrowing.

Should I use market values or book values?

Use market values of equity and debt wherever possible. The market value of equity is the share price times shares outstanding (market capitalization); the market value of debt is what the company's bonds and loans would trade for today, often approximated by book value if rates have not moved much. Book-value weights can distort WACC, especially for companies whose stock trades well above book.

How do I estimate the cost of equity?

The most common method is the Capital Asset Pricing Model (CAPM): Re = risk-free rate + beta x equity risk premium. The risk-free rate is usually a long-term government bond yield, beta measures the stock's sensitivity to the market, and the equity risk premium is the extra return investors demand for holding stocks over bonds. This calculator takes the resulting Re as an input.

What is a typical WACC?

There is no single 'normal' WACC because it depends on the industry, interest rates, leverage and risk. Large, stable companies often land somewhere in the high single digits to low teens, while smaller or riskier firms can be higher. The right benchmark is your own peers, not a universal number, so compare against companies with similar risk and capital structure.

What does WACC tell me?

WACC is a hurdle rate: a project should generally only create value if its expected return exceeds the company's WACC. It is also the standard discount rate in a discounted cash flow (DCF) valuation - dividing or discounting future cash flows by WACC converts them into today's dollars. A lower WACC raises present value; a higher WACC lowers it.

Can WACC be used as a discount rate for any project?

Only for projects whose risk matches the company's overall risk. WACC reflects the average risk of the firm's existing assets, so applying it to an unusually risky or unusually safe project will misprice it - too low a hurdle for risky bets and too high for safe ones. For very different projects, adjust the discount rate to that project's specific risk instead.

Does a higher debt level always lower WACC?

Not always. Debt is cheaper than equity (it is senior and tax-deductible), so adding modest leverage can lower WACC. But beyond a point, more debt raises the risk of financial distress, which pushes up both the cost of debt and the cost of equity, eventually increasing WACC. There is an optimal capital structure rather than 'more debt is always better.'

Why does my WACC change when I change the capital structure?

WACC weights each financing source by its share of total capital (E/V and D/V). Shifting the mix toward cheaper debt lowers the blended rate, all else equal, while issuing equity raises the equity weight. Because the calculator recomputes the weights from the equity and debt values you enter, any change to E or D moves the result.

Is WACC the same as the cost of equity?

No. The cost of equity (Re) is only the return shareholders require. WACC blends that with the after-tax cost of debt according to how much of each the company uses. For an all-equity firm with no debt, WACC equals the cost of equity; once a company borrows, WACC falls below the cost of equity (assuming debt is cheaper).

Does this WACC calculator handle preferred stock?

This tool uses the two-source version of the formula (equity and debt), which covers most situations. If a company has meaningful preferred stock, you would add a third term, (P/V) x Rp, where P is the market value of preferred and Rp its cost. You can approximate it here by folding preferred into the equity figure, though a dedicated three-source model is more precise.

How is WACC different from the discount rate?

WACC is the most common discount rate, but the two are not identical. The discount rate is whatever rate you use to convert future cash flows to present value. For a whole company or an average-risk project, that rate is normally WACC. But for a project that is much riskier or much safer than the firm's typical business, you should use a discount rate matched to that project's risk instead of the company-wide WACC.

What is a good WACC by industry?

There is no single good number - it depends on the sector, interest rates and leverage. As rough orientation, regulated utilities often sit around 4%-7%, consumer staples and large industrials around 6%-9%, mature tech and healthcare around 8%-11%, and early-stage or high-growth firms 12%-20% or more. The right benchmark is always peers of similar size and risk, not a universal figure.

How do I lower a company's WACC?

WACC falls when you reduce the cost of either financing source or shift the mix toward the cheaper one. In practice that can mean refinancing debt at a lower rate, improving credit quality to cut the cost of debt, or adding modest leverage so the cheaper, tax-shielded debt carries more weight. The catch is that too much debt eventually raises the risk of distress, which pushes both the cost of debt and the cost of equity back up - so there is an optimal mix rather than 'minimize at all costs.'

💡 Good to know

A small change in WACC swings a valuation a lot

Because WACC discounts every future year of cash flow, moving it even half a percentage point can change a discounted cash flow valuation by a wide margin. Stress-test your WACC with a range, not a single point estimate.

Cheaper debt is not a free lunch

Debt lowers WACC up to a point, but heavy leverage raises the odds of financial distress, which pushes up the cost of both debt and equity. The lowest-WACC capital structure is a balance, not the maximum amount of debt you can carry.

Compare WACC against peers, not a universal number

There is no single "good" WACC. What matters is how your figure compares with companies of similar size, industry and risk. A capital-intensive utility and an early-stage software firm should have very different costs of capital.

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