Calculate your company's weighted average cost of capital instantly. Enter the market values of equity and debt, the cost of each, and your corporate tax rate to find the blended rate your business must earn on its investments.
Equity: $600,000 ยท Debt: $400,000 ยท Re: 9% ยท Rd: 5% ยท Tax: 25%
Total capital V = $600,000 + $400,000 = $1,000,000
Equity weight = $600,000 รท $1,000,000 = 60% ยท Debt weight = 40%
After-tax cost of debt = 5% ร (1 โ 0.25) = 3.75%
Equity component = 0.60 ร 9% = 5.40%
Debt component = 0.40 ร 3.75% = 1.50%
WACC = 5.40% + 1.50% = 6.90%
Equity: $250,000 ยท Debt: $750,000 ยท Re: 12% ยท Rd: 6% ยท Tax: 21%
Total capital V = $250,000 + $750,000 = $1,000,000
Equity weight = 25% ยท Debt weight = 75%
After-tax cost of debt = 6% ร (1 โ 0.21) = 6% ร 0.79 = 4.74%
Equity component = 0.25 ร 12% = 3.00%
Debt component = 0.75 ร 4.74% = 3.56%
WACC = 3.00% + 3.56% = 6.56%
Equity: $500,000 ยท Debt: $500,000 ยท Re: 10% ยท Rd: 5% ยท Tax: 0%
Total capital V = $1,000,000 ยท Equity weight = 50% ยท Debt weight = 50%
After-tax cost of debt = 5% ร (1 โ 0) = 5.00% (no tax shield at 0% tax)
Equity component = 0.50 ร 10% = 5.00%
Debt component = 0.50 ร 5.00% = 2.50%
WACC = 5.00% + 2.50% = 7.50%
E = Market value of equity
D = Market value of debt
V = E + D, total market value of capital
Re = Cost of equity (%)
Rd = Cost of debt (%)
Tc = Corporate tax rate (%)
Step 1: Compute total capital V = E + D, then the weights E/V and D/V (they must sum to 1, i.e. 100%).
Step 2: Compute the after-tax cost of debt = Rd ร (1 โ Tc). The tax rate reduces the effective interest cost because interest payments are tax-deductible.
Step 3: Multiply each cost by its weight and add: WACC = (E/V ร Re) + (D/V ร Rd ร (1 โ Tc)).
Total capital must be positive: if E + D = 0 there is no capital to weight, so the calculator shows an error.
All-equity firm (D = 0): WACC simplifies to Re โ the cost of equity alone.
All-debt firm (E = 0): WACC equals the after-tax cost of debt.
Tax rate 0%: no tax shield โ the cost of debt is used at its full pre-tax rate.
Validation: all inputs must be โฅ 0 and the tax rate must stay between 0% and 100%.
WACC is the discount rate most commonly used to value a company or project. Because debt is cheaper than equity (both because it is less risky and because interest is tax-deductible), a firm's capital structure directly shapes its WACC โ and therefore the returns it must generate to create value.
Combines the cost of equity and the after-tax cost of debt into a single number โ the minimum return your company's investments must earn to satisfy both shareholders and lenders.
See the exact equity and debt weights (E/V and D/V) plus a weight check that confirms they sum to 100%, so your inputs are always internally consistent.
Interest on debt is tax-deductible. The calculator automatically applies the (1 โ Tc) adjustment and shows the tax shield benefit as its own result.
Every calculation is shown line by line โ total capital, weights, after-tax cost of debt, each component, and the final WACC โ so you can audit the math.
WACC stands for Weighted Average Cost of Capital โ the average rate a company pays to finance its assets, weighted by the market values of each source of capital. Every dollar a business uses comes from either shareholders (equity) or lenders (debt), and both groups expect a return. WACC is the blended return the company must earn just to break even on those expectations.
Think of WACC as the company's opportunity cost of capital. If a project earns more than WACC, it creates value for shareholders; if it earns less, it destroys value. That makes WACC the natural hurdle rate for capital budgeting, the discount rate for discounted cash flow (DCF) valuation, and a key input in setting executive performance targets.
Your cost of equity (Re) is the return shareholders expect for bearing the risk of your stock. The most common method is the Capital Asset Pricing Model (CAPM): Re = Rf + ฮฒ ร (Rm โ Rf), where Rf is the risk-free rate (such as 10-year Treasury yields), ฮฒ (beta) measures how much the stock moves with the market, and (Rm โ Rf) is the equity market risk premium. A higher beta means more risk, which means a higher required return.
Your cost of debt (Rd) is the effective interest rate the company pays on its borrowings โ most accurately measured as the yield to maturity on the company's existing bonds, or the rate a bank would charge on a new loan of similar risk. Unlike equity, debt interest is tax-deductible, so the true cost to the company is the after-tax rate: Rd ร (1 โ Tc).
| Input | Typical Range | How It's Estimated |
|---|---|---|
| Cost of Equity (Re) | 8% โ 15% | CAPM: risk-free rate + beta ร market risk premium |
| Cost of Debt (Rd) | 4% โ 9% | Yield to maturity on bonds or current loan rates |
| Corporate Tax Rate (Tc) | 15% โ 35% | Marginal statutory rate, or effective cash tax rate |
| Equity Weight | 30% โ 90% | Market cap รท (market cap + market value of debt) |
In DCF valuation, a company's future free cash flows are discounted at WACC to get its present value โ so a lower WACC raises the valuation and a higher one lowers it. In capital budgeting, the rule is simple: accept a project when its expected return exceeds WACC (positive NPV), and reject it when it falls short.
Because WACC depends on the capital structure, companies constantly weigh the trade-off: adding debt lowers WACC through the tax shield, but too much debt raises financial risk โ which pushes up both Re and Rd and can eventually drive WACC back up. The table below shows how the same company's WACC changes across capital structures.
| Equity (E) | Debt (D) | Re | Rd | Tax | WACC |
|---|---|---|---|---|---|
| $600,000 | $400,000 | 9% | 5% | 25% | 6.90% |
| $250,000 | $750,000 | 12% | 6% | 21% | 6.56% |
| $500,000 | $500,000 | 10% | 5% | 0% | 7.50% |
| $1,000,000 | $0 | 10% | โ | 25% | 10.00% |
The all-equity firm carries its full 10% cost of equity; adding moderately priced, tax-deductible debt lowers WACC โ which is why most companies use a mix of both.
Educational Purposes Only: This WACC calculator is provided for educational and informational purposes only. Results are estimates based on the information you provide and standard corporate finance formulas. They do not constitute financial, investment, or tax advice. Actual capital costs depend on many factors including market conditions, credit ratings, industry risk, and your specific capital structure. Always consult with a qualified financial professional before making investment or financing decisions.