WACC Calculator
Calculate Weighted Average Cost of Capital to determine your company's profitability threshold
Calculate WACC
Capital Structure
Total value of shareholders' equity
Total value of company debt
Cost Components
Required return on equity
Interest rate on debt
Corporate income tax rate
WACC Results
Investment Analysis
Example: Small Company WACC Calculation
Company Financials
Equity Value: $700,000
Debt Value: $500,000
Cost of Equity: 15%
Cost of Debt: 8%
Corporate Tax Rate: 20%
Step-by-Step Calculation
Step 1 - Total Capital: $700,000 + $500,000 = $1,200,000
Step 2 - Equity Weight: $700,000 ÷ $1,200,000 = 58.3%
Step 3 - Debt Weight: $500,000 ÷ $1,200,000 = 41.7%
Step 4 - After-Tax Cost of Debt: 8% × (1 - 20%) = 6.4%
Step 5 - WACC: 58.3% × 15% + 41.7% × 6.4% = 8.75% + 2.67% = 11.42%
Result: Company needs to generate returns above 11.42% to create value
WACC Components
Equity
Shareholders' ownership value
Market cap for public companies
Debt
Borrowed capital
Bonds, loans, credit facilities
Cost of Equity
Required return on equity
Often calculated using CAPM
Cost of Debt
Interest rate on debt
Weighted average if multiple debts
Tax Rate
Corporate income tax
Creates tax shield for debt
WACC Applications
Investment evaluation and capital budgeting
Company valuation (DCF models)
Performance measurement (EVA)
Capital structure optimization
Mergers and acquisitions analysis
Hurdle rate for project approval
Understanding WACC (Weighted Average Cost of Capital)
What is WACC?
WACC represents the average cost of capital from all sources, weighted by their proportion in the capital structure. It's the minimum return a company must earn to satisfy all stakeholders and maintain its value.
Why is WACC Important?
- •Sets the hurdle rate for investment decisions
- •Used as discount rate in DCF valuations
- •Measures cost of capital and financing efficiency
- •Helps optimize capital structure decisions
WACC Formula
WACC = E/(E+D) × Ce + D/(E+D) × Cd × (1-T)
Where:
E = Market value of equity
D = Market value of debt
Ce = Cost of equity
Cd = Cost of debt
T = Corporate tax rate
Tax Shield Benefit
Debt interest is tax-deductible, creating a "tax shield" that reduces the effective cost of debt. This makes debt financing more attractive than equity financing from a tax perspective.
Note: Projects with returns above WACC create value, while those below destroy value