BUSINESS FINANCE
WACC Calculator
Calculate weighted average cost of capital using equity, debt, tax rate, beta, risk-free rate, and equity risk premium assumptions.
THE BLEND
What the capital costs.
Equity is 91.20% of the structure. Debt is the rest, and the tax shield lowers its cost to 1.98%.
| Component | Value |
|---|---|
| Net debt | $3,411 |
| Equity value | $35,197 |
| After-tax cost of debt | 1.98% |
| Cost of equity | 9.36% |
| WACC | 8.71% |
The risk-free rate is usually the 10-year Treasury. Beta is how much the stock moves with the market. The equity risk premium is the extra return investors expect over that Treasury rate.
THE INPUTS
The assumptions behind the rate.
How WACC is calculated
- Estimate cost of equity with the risk-free rate plus beta times the equity risk premium.
- Multiply debt cost by one minus the corporate tax rate for the after-tax debt cost.
- Weight equity and debt costs by their shares of total capital.
- Add the weighted components to estimate WACC.
Worked example
With 70% equity at a 10% cost and 30% debt at a 4.2% after-tax cost, WACC is about 8.26%.
Assumptions and boundaries
- Capital weights represent market values and add to 100%.
- Beta and the equity risk premium are estimates, not observed future returns.
- Interest is assumed tax-deductible at the entered corporate tax rate.
Important limitation: WACC can be misleading for changing capital structures, distressed firms, private companies, or projects with risk unlike the overall business.
Sources and review
Methodology and links reviewed . This educational estimate is not financial, tax, legal, investment, or lending advice.
Frequently asked questions
- What is WACC used for?
- It is commonly used as a discount-rate starting point for cash flows with risk similar to the overall company.
- Should book value or market value weights be used?
- Market values generally better represent the current opportunity cost of financing.