WACC calculator (weighted average cost of capital)

WACC Calculator — Weighted Average Cost of Capital

WACC is the minimum return a company must earn on its existing assets to satisfy both creditors and equity owners. It blends the cost of each capital source — equity and debt — weighted by their proportional share of the total capital structure. WACC is the most important single number in corporate valuation: it's the denominator in a DCF model, and small changes cascade into large valuation swings.

The WACC Formula

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

Where E = market value of equity, D = market value of debt, V = E + D, Re = cost of equity, Rd = pre-tax cost of debt, T = corporate tax rate.

Cost of Equity — CAPM

The Capital Asset Pricing Model estimates cost of equity:

Re = Rf + β × (Rm − Rf)

Where Rf = risk-free rate (10-year US Treasury, ~4.5% in 2025), β = beta (systematic risk relative to market), and (Rm − Rf) = equity risk premium (~5.5%). A company with β = 1.2 has a cost of equity of 4.5% + 1.2 × 5.5% = 11.1%.

After-Tax Cost of Debt

Interest is tax-deductible, so the effective cost of debt is Rd × (1 − T). A company paying 6% interest with a 25% tax rate has an after-tax debt cost of 4.5%. The tax shield makes debt structurally cheaper than equity, which is why most firms maintain some leverage.

Capital Structure Weights

The weights E/V and D/V must use market values, not book values. For a company with $500M market cap and $200M debt, V = $700M, E/V = 71.4%, D/V = 28.6%. These weights reflect how the market currently prices each capital component.

Interpreting Your WACC

Compare WACC to ROIC (return on invested capital). If ROIC > WACC, the company creates economic value. If ROIC < WACC, it destroys value even if accounting profits look positive. Many seemingly profitable companies are actually value-destroyers when measured against their true cost of capital.