WACC Calculator
Blend equity and debt costs into one weighted average cost of capital — the discount rate a DCF wants.
Weighted Average Cost of Capital
Live toolCost of equity helper (CAPM): Re = risk-free rate + beta × equity risk premium
Optional — fill all three (beta between -5 and 5, rates 0-100) to compute Re. A common baseline: 10-year Treasury yield, published beta, 4-6% premium.
Percent inputs are percent-numbers (9 means 9%). WACC pairs with unlevered free cash flow (FCFF) in a DCF.
How it works
A company is funded by two kinds of money: equity from shareholders and debt from lenders. Each has a price. Shareholders demand a return for taking the most risk (the cost of equity), and lenders charge interest (the cost of debt). WACC blends the two into one number by weighting each cost by its share of total capital at market value — a company funded 75% by equity and 25% by debt leans 75% on the expensive leg.
The debt leg gets one adjustment: interest is tax-deductible, so the pretax borrowing rate is multiplied by one minus the tax rate. At a 21% tax rate, 5% pretax debt really costs 3.95%. Equity gets no such shield, which is why adding reasonable amounts of debt usually lowers WACC.
No cost-of-equity estimate handy? The built-in CAPM helper computes one from a risk-free rate, beta, and an equity risk premium, and fills it in with one click. Once the WACC is computed you can save it to your Analysis Memory as discountRate — the DCF Calculator picks it up automatically, since a DCF that discounts unlevered free cash flow (FCFF) is exactly what WACC is for.
The formula
WACC = (E ÷ (E + D)) × Re + (D ÷ (E + D)) × Rd × (1 − T)
E is equity value (market cap), D is debt value, Re is the cost of equity, Rd is the pretax cost of debt, and T is the tax rate as a decimal. The first term is the equity weight times the cost of equity; the second is the debt weight times the after-tax cost of debt.
CAPM helper: Re = Rf + beta × ERP. The risk-free rate Rf anchors the floor, beta scales exposure to the market, and the equity risk premium ERP prices that exposure. With Rf = 4.3%, beta = 1.2, ERP = 5%: Re = 4.3 + 1.2 × 5 = 10.3%.
Guards: E and D must each be $0 or more and cannot both be zero — the weights would divide by zero. Rates are percent-numbers between 0 and 100, converted to decimals internally.
Worked example
Inputs: equity value E = $150B; debt value D = $50B; cost of equity Re = 9%; pretax cost of debt Rd = 5%; tax rate T = 21%.
- Total capital: 150 + 50 = $200B.
- Equity weight: 150 ÷ 200 = 0.75. Debt weight: 50 ÷ 200 = 0.25.
- After-tax cost of debt: 5 × (1 − 0.21) = 5 × 0.79 = 3.95%.
- Equity leg: 0.75 × 9 = 6.75. Debt leg: 0.25 × 3.95 = 0.9875.
- WACC = 6.75 + 0.9875 = 7.74% (7.7375 before rounding).
Sanity check: WACC always lands between the after-tax cost of debt and the cost of equity — 3.95% < 7.74% < 9% ✓. Shift the mix to 50/50 and it drops to 0.5 × 9 + 0.5 × 3.95 = 6.48%, because more of the funding comes from the cheaper, tax-shielded leg.
FAQ
What is WACC?
WACC is the weighted average cost of capital — the blended rate a company pays its capital providers, mixing the cost of equity and the after-tax cost of debt by their market-value weights. A firm with $150B of equity costing 9% and $50B of debt costing 5% pretax at a 21% tax rate has a WACC of about 7.74%.
What is the WACC formula?
WACC = (E ÷ (E + D)) × Re + (D ÷ (E + D)) × Rd × (1 − T). With E = $150B, D = $50B, Re = 9%, Rd = 5%, T = 21%: weights are 0.75 and 0.25, so WACC = 0.75 × 9 + 0.25 × 5 × 0.79 = 6.75 + 0.99 = 7.74%.
Why is the cost of debt multiplied by (1 − tax rate)?
Interest is tax-deductible, so every dollar of interest shields profit from tax. A 5% pretax borrowing cost at a 21% tax rate really costs 5 × (1 − 0.21) = 3.95% after tax. Equity gets no such shield, which is one reason debt is the cheaper leg.
How do I estimate the cost of equity?
The standard shortcut is CAPM: Re = risk-free rate + beta × equity risk premium. With a 4.3% risk-free rate, a beta of 1.2, and a 5% equity risk premium: Re = 4.3 + 1.2 × 5 = 10.3%. The calculator includes these three inputs as an optional helper.
Should I use market values or book values for equity and debt?
Market values. For equity that is market cap (price × diluted shares), not balance-sheet equity — the two can differ by 10x for asset-light companies. For debt, book value from the latest filing is the common practical proxy because most corporate debt trades near par.
What discount rate should I use in a DCF?
When the DCF discounts unlevered free cash flow to the firm (FCFF), the matching discount rate is WACC — that pairing is what the DCF Calculator on this site expects. Discounting FCFF at the cost of equity alone overstates value because it ignores the cheaper debt leg.
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Educational use only — nothing here is investment, tax, or legal advice. WACC is an estimate built on estimates: beta, the equity risk premium, and the effective tax rate are all assumptions, and small changes move the result. A WACC carried into a DCF as the discount rate is an assumption you are choosing to make, not a market fact. US markets / USD framing throughout.