WACC Calculator
Calculate your company's Weighted Average Cost of Capital (WACC). Determine the cost of financing your business and evaluate investment opportunities.
Note: Enter your financial data in the form below. All percentage values should be entered as numbers (e.g., enter 10 for 10%). Make sure all inputs are consistent in terms of time period (typically annual figures).
About the WACC Calculator
What is WACC?
WACC stands for Weighted Average Cost of Capital. It represents the average rate that a company is expected to pay to all its security holders to finance its assets. The WACC is used as a hurdle rate for capital budgeting decisions and as a discount rate for cash flow analysis in investment valuations.
Why Calculate WACC?
- Determine the minimum return required on new investments
- Evaluate investment opportunities and capital projects
- Serve as a discount rate for discounted cash flow (DCF) analysis
- Assess the company's overall financial health and risk profile
- Compare financing costs across different capital structures
- Aid in business valuation processes
WACC Formula
WACC = (E/V × Re) + (D/V × Rd × (1 - Tc))
Where:
- E = Market value of equity
- D = Market value of debt
- V = Total market value (E + D)
- Re = Cost of equity
- Rd = Cost of debt
- Tc = Corporate tax rate
Components of WACC
Cost of Equity (Re)
The cost of equity represents the return required by equity investors. It can be calculated using models like the Capital Asset Pricing Model (CAPM): Re = Rf + β(Rm - Rf), where Rf is the risk-free rate, β is the company's beta (systematic risk), and Rm is the expected market return.
Cost of Debt (Rd)
The cost of debt is the effective interest rate a company pays on its debt. Since interest expenses are tax-deductible, the after-tax cost of debt is used in the WACC calculation: Rd × (1 - Tc).
Weights
The weights represent the proportion of each financing source in the company's capital structure. Market values rather than book values should be used for more accurate results.
WACC Limitations
- Assumes a constant capital structure over time
- Can be difficult to precisely estimate components like the cost of equity
- May not account for complex capital structures with multiple types of debt and equity
- Does not consider the specific risks of individual projects
- Market values of debt and equity can fluctuate over time
- Simplified tax treatment may not reflect complex international tax situations
WACC vs. Required Rate of Return
While WACC represents the overall cost of capital for a company, the required rate of return for a specific project may need to be adjusted for the project's unique risk profile. Projects with higher risk than the company's average should use a higher discount rate, while lower-risk projects might use a lower rate.
Disclaimer
This calculator is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial professional before making investment decisions. The results provided by this calculator are based on the information you input and may not reflect all aspects of your financial situation.