C

WACC Calculator

Calculate the Weighted Average Cost of Capital (WACC) using market values, cost rates, and tax considerations. Essential for DCF valuation, capital budgeting, and investment analysis.

Calculate WACC

Market Values (USD)
Cost Rates (%)

WACC Calculation Results

10.50%
Weighted Average Cost of Capital

Capital Structure Weights

Equity Weight:80.00%
Debt Weight:20.00%
Preferred Weight:0.00%

Cost Components

After-Tax Cost of Debt:4.50%
Total Market Value:$10B

Formula

WACC = (E/V × Re) + (D/V × Rd × (1-T)) + (P/V × Rp)
WACC = (Equity Weight × Cost of Equity) + (Debt Weight × After-Tax Cost of Debt) + (Preferred Weight × Cost of Preferred)

Notes

  • WACC calculation based on CFA Institute and corporate finance standards.
  • Tax shield benefit of debt is included in the calculation.

What is WACC?

The Weighted Average Cost of Capital (WACC) is the average rate of return a company must pay to all its security holders to finance its assets. It represents the minimum return that a company must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital.

Key Components

  • • Cost of Equity: Required return for equity investors (often estimated using CAPM)
  • • Cost of Debt: Interest rate on company's debt (adjusted for tax benefits)
  • • Cost of Preferred Stock: Required return for preferred shareholders
  • • Tax Rate: Corporate tax rate (affects after-tax cost of debt)

How to Calculate WACC

Formula

WACC = (E/V × Re) + (D/V × Rd × (1-T)) + (P/V × Rp)
Sources:CFA Institute,Damodaran (NYU Stern),SEC EDGAR
  1. 1
    Gather market values
    Equity, debt, and preferred stock market values
  2. 2
    Calculate weights
    Each component's proportion of total capital
  3. 3
    Apply tax adjustment
    Multiply debt cost by (1 - tax rate) for tax shield
  4. 4
    Calculate weighted average
    Sum of (weight × cost) for each component

Example Calculation

Sample Company

• Market Value of Equity: $8,000M
• Market Value of Debt: $2,000M
• Market Value of Preferred: $0M
• Cost of Equity: 12%
• Cost of Debt: 6%
• Tax Rate: 25%
WACC = (80% × 12%) + (20% × 6% × (1-25%)) = 9.6% + 0.9% = 10.5%

Important Considerations

Market Values vs Book Values

Always use market values, not book values, for accurate WACC calculation. Market values reflect current investor expectations.

Tax Shield Benefit

Debt provides a tax shield because interest payments are tax-deductible, reducing the effective cost of debt.

Target vs Current Capital Structure

Consider whether to use current capital structure or target capital structure based on your analysis purpose.

Frequently Asked Questions

How do I estimate the cost of equity?
The most common method is the Capital Asset Pricing Model (CAPM): Re = Rf + β(Rm - Rf), where Rf is the risk-free rate, β is the company's beta, and Rm is the expected market return. Other methods include the Dividend Growth Model and Bond Yield Plus Risk Premium approach.
Should I use book values or market values?
Always use market values for WACC calculation. Market values reflect current investor expectations and provide a more accurate representation of the company's true cost of capital. Book values are historical and may not reflect current market conditions.
What if the company has no preferred stock?
If there's no preferred stock, simply enter $0 for the market value of preferred stock and any value (e.g., 0%) for the cost of preferred stock. The formula will automatically adjust to only include equity and debt components.
How often should WACC be recalculated?
WACC should be recalculated whenever there are significant changes in market conditions, capital structure, or company risk profile. For most companies, quarterly or semi-annual updates are appropriate, but major events (like acquisitions or market volatility) may require more frequent updates.
What are typical WACC ranges by industry?
WACC varies by industry and company risk: Utilities (4-8%), Consumer Staples (6-10%), Technology (8-15%), Healthcare (7-12%), Financial Services (6-11%), and High-Risk Startups (15-25%). These ranges reflect different risk profiles and capital structures across industries.
How does WACC relate to valuation?
WACC is used as the discount rate in DCF (Discounted Cash Flow) valuation models. It represents the minimum return required by all capital providers, making it the appropriate rate to discount future cash flows to present value. A higher WACC results in lower valuations, while a lower WACC increases valuations.

Related Calculators