Overview
Enter the market value of equity and debt, the cost of equity, the cost of debt, and the corporate tax rate to calculate a company's Weighted Average Cost of Capital: WACC = (E/V × Re) + (D/V × Rd × (1 − T)), where V = E + D is total capital, and the after-tax cost of debt (Rd × (1 − T)) reflects the fact that interest payments are tax-deductible while dividend payments to equity holders are not. Total capital (equity plus debt) must be greater than zero, but either component alone can be zero - a fully equity-financed or fully debt-financed capital structure is a valid, supported edge case, not an error. WACC represents the minimum return a company must earn on its existing assets to satisfy both its shareholders and its lenders, and is the standard discount rate used in a discounted cash flow (DCF) valuation. Useful alongside the CAPM Calculator (which computes only the cost of equity, one of WACC's two inputs), the EVA and NOPAT Calculators (which use a similar after-tax framing), and the DCF Calculator (which needs a discount rate as an input). Runs entirely client-side, and this is an informational estimate, not financial advice.
Best for: Finding the discount rate to use in a discounted cash flow valuation or comparing a company's cost of capital over time
How to use this tool
- Enter market value of equity and debt. These determine the equity weight (E/V) and debt weight (D/V) of the capital structure.
- Enter cost of equity and cost of debt. The cost of equity (e.g. from the CAPM Calculator) and the pre-tax cost of debt (e.g. the interest rate on the company's debt).
- Enter the tax rate. Used to compute the after-tax cost of debt, since interest is tax-deductible.
- Read the WACC. The weighted blend of the after-tax cost of debt and the cost of equity - the company's overall cost of capital.
Frequently asked questions
Interest paid on debt is tax-deductible, which lowers its effective cost to the company - a $100 interest payment with a 25% tax rate only really costs the company $75 after the tax shield. Dividends paid to equity holders are not tax-deductible, so the cost of equity is used as-is, with no equivalent adjustment.
Yes - both are valid edge cases. A fully equity-financed company (debt = 0) has a WACC equal to its cost of equity; a fully debt-financed company (equity = 0) has a WACC equal to its after-tax cost of debt. The calculator only requires that equity and debt aren't both zero, since a company needs at least some capital to have a cost of capital.
The CAPM Calculator computes only the cost of equity (Re) - one of two inputs this calculator needs. WACC combines that cost of equity with the cost of debt, weighted by how much of the company's capital structure is equity versus debt, to arrive at the company's single overall cost of capital.