What Is a WACC Calculator?
A WACC calculator computes the weighted average cost of capital — the average rate a company is expected to pay to finance its assets, blending the cost of equity and the after-tax cost of debt according to its capital structure. WACC is a cornerstone of corporate finance, used as the discount rate in valuation and investment decisions. Enter the inputs and the calculator returns the WACC.
How to Use the Calculator
- Enter the market value of equity and debt.
- Enter the cost of equity and cost of debt.
- Enter the corporate tax rate.
- Calculate — see the WACC.
The WACC Formula
WACC = (E/V) × Re + (D/V) × Rd × (1 − Tax Rate)
where E is equity value, D is debt value, V = E + D, Re is the cost of equity, Rd is the cost of debt, and the tax term reflects that interest on debt is tax-deductible.
The Components
| Term | Meaning |
|---|---|
| Cost of equity (Re) | Return shareholders require, often from CAPM |
| Cost of debt (Rd) | Interest rate on the company's debt |
| Tax shield | Interest is tax-deductible, lowering debt cost |
| Weights (E/V, D/V) | Proportions of equity and debt financing |
Why WACC Matters
- Valuation: used as the discount rate in discounted cash flow models.
- Investment decisions: projects should earn more than the WACC.
- Capital structure: shows the blended cost of financing.
The Tax Shield
Because interest payments are tax-deductible, debt has a lower effective cost than its stated rate. The (1 − tax rate) factor in the formula captures this tax shield, which is why adding some debt can lower a company's WACC up to a point.
Frequently Asked Questions
What is WACC?
WACC is the weighted average cost of capital — the blended rate a company pays to finance its assets through equity and debt, weighted by their proportions.
How do you calculate WACC?
Use WACC = (E/V)·Re + (D/V)·Rd·(1 − tax rate), combining the cost of equity and after-tax cost of debt by their weights in the capital structure.
Why is the cost of debt adjusted for taxes?
Interest on debt is tax-deductible, so the effective cost of debt is lower. Multiplying by (1 − tax rate) reflects this tax shield.
What is WACC used for?
It is the discount rate in valuation models and a hurdle rate for investments — projects expected to return more than the WACC create value.
Is this WACC calculator free?
Yes — it is completely free, requires no signup, and computes the cost of capital.