Profit & Margin
WACC Calculator
Work out the weighted average cost of capital.
WACC Calculator
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How it works
The weighted average cost of capital blends the cost of equity and the after-tax cost of debt, weighted by how much of each a company uses. It is the minimum return a company must earn on its projects to keep all its investors satisfied.
Debt gets a tax shield: interest is tax deductible, so the after-tax cost of debt is lower than the stated rate. That is why the formula multiplies the debt component by (1 − tax rate).
Formula
WACC = (E/V) · Re + (D/V) · Rd · (1 − T)
E = equity value, D = debt value, V = E + D, Re = cost of equity, Rd = cost of debt, T = tax rate.
Worked example
Example: equity $600,000, debt $400,000, cost of equity 12%, cost of debt 6%, tax 21%. WACC = 0.6 × 12% + 0.4 × 6% × 0.79 = 7.2% + 1.9% = 9.1%.
WORKED EXAMPLE — DEFAULT INPUTS
What to know
For a private company, the cost of equity is estimated, not quoted. A common approach asks what return investors would expect for the risk: something like the return on a diversified index plus a premium for the specific business risk. If the owner would want 15% and debt costs 6% after tax, the WACC sits between the two.
WACC is also a planning tool. A company earning 20% on its projects while its WACC is 9% is creating value; one earning 7% against a 9% WACC is destroying value even if it turns an accounting profit.
Recalculate the cost of capital whenever rates or your capital structure change; the number drifts quietly, and every project decision you discount against it inherits the drift.
FAQ
What is a typical WACC?
For large public companies, roughly 7-12%. Startups and small businesses usually face higher costs because their equity risk is higher.
Why is debt cheaper than equity?
Debt holders take less risk and get paid first, and interest is tax deductible. Equity demands a premium for bearing residual risk.
How do I estimate the cost of equity?
A common approach is the capital asset pricing model: risk-free rate plus a beta-scaled equity risk premium. For a private business, ask what investors would expect for similar risk.
What is WACC used for?
As the discount rate for project NPVs, the hurdle rate for new investments, and the denominator logic for company valuation.