With WACC Calculator determine the company’s weighted average cost of capital in seconds. Input the market value of equity and debt, cost for each and the marginal tax rate to display the blended rate for valuation and capital budgeting.
Capital structure and WACC contribution
See how the company is funded and how each source affects WACC.
The donut shows the capital mix. The bars show each source’s share of the final WACC after applying the debt tax shield.
| Component | Formula | Value |
|---|---|---|
| Equity component | E/V x Re | – |
| Debt component (after tax) | D/V x Rd x (1 – T) | – |
| WACC total (unrounded) | Sum of components | – |
Table of Contents
What is weighted average cost of capital (WACC Calculator)?
The weighted average cost of capital (WACC) is the annual rate of return that a company is required to offer to the capital providers that fund its operations. Equity investors look for dividends as well as capital appreciation; lenders look for interest and principal repayment. WACC is a weighted average of the required returns as determined by the company’s capital structure.
WACC is a benchmark for value creation. If a project’s return is 14%, it can add value to a company that has a 10% WACC, but an 8% return is unlikely to do so. The comparison is used by analysts for capital investment, acquisition, valuation and measurement of performance.
How the WACC formula works
The formula gives each source of capital equal weights:
WACC = (E / V × Re) + (D / V × Rd × (1 − T))
The market value of equity is E, the market value of debt is D and total capital (E+D) is V. Re represents the cost of equity, Rd the pre-tax cost of debt and T the marginal corporate tax rate. The interest is typically tax deductible, so that the debt cost gets reduced by the tax shield and becomes Rd × (1 − T).
This calculator calculates the capital weights, takes the tax shield only one time, sums the two components and displays the respective contribution of each source to the total WACC.
WACC worked example
Suppose a manufacturer has $600 million of equity and $400 million of debt. A 12% return is the required return for shareholders, the interest rate charged by lenders is 6%, and the marginal tax rate is 25%. The total capital is $1 billion with equity weighting of 60% and debt weighting of 40%.
The equity component is 60% × 12% = 7.2%. The after-tax cost of debt is 6% × (1 − 25%) = 4.5%; multiplied by the 40% debt weight, it contributes 1.8%. The WACC is therefore 7.2% + 1.8% = 9.0%.
With this setup, 80% of the contribution to the WACC comes from equity, and 20% of it comes from after-tax debt. The tax shield reduces the cost of debt below its pre-tax rate.
WACC vs discount rate: what is the difference?
A discount rate is used to discount future cash flows to the present value. WACC is one type of discount rate and is typically applied to free cash flow to the firm (FCFF) also known as unlevered free cash flow. It is the average risk and required return of the company’s lenders and equity investors.
Other cash flows will be at different rates. For FCFE, it is typically discounted at the cost of equity and in cases where the project risk is materially different, a project hurdle rate may be required. Always match the discount rate with the cash flows, risk and capital structure being discounted.
When you actually use WACC
- DCF valuation. Estimate firm value using projected free cash flows, discounted at WACC, and subtract net debt to get the value of equity. Analysts may perform sensitivity analysis, as a small shift in WACC can significantly affect the value.
- Capital budgeting. NPV and IRR decisions use the project return against the money cost – WACC (weighted average cost of the money used to fund the project) – projects should be accepted if they return greater than the WACC.
- Mergers and acquisitions. Acquirers assume a target’s cash flows at the appropriate WACC, and weigh the impact the combined company’s capital structure and risk profile will be affected. The rate should be commensurate with the operating risk and proposed financing plan for the target.
- Performance benchmarking. Operating profit minus a capital charge (invested capital multiplied by WACC) is economic value added (EVA); it indicates whether real value is being created (EVA>0) or destroyed (EVA<0) above the cost of capital.
- Setting pricing floors. WACC can be used in the analysis of the returns contained in the regulated utilities and capital-intensive firms’ customer prices.
Pro tips for a defensible WACC estimate
- Do not use book values. The weights should be based on the economic value of each financing source at current market rates. Book values may be a good indicator of debt, but they don’t equal market equity.
- The marginal tax rate should be used. The tax shield will only benefit from the next dollar of interest paid, thus the current marginal rate is more relevant than an historical effective rate which may be impacted by one-time items.
- Use the debt tax shield only once. Enter a pre-tax cost of debt, and multiply by n(1 − T), where n is an after-tax rate (or use an explicitly after-tax cost of debt in another model). Don’t use both the adjustments at the same time.
- Use preferred stock if available. Include (P / V) × Rp if preferred shares are included in financing (if there are preferred shares). Rp is the preferred dividend yield.
- Check the beta and capital structure. If cost of equity is estimated using CAPM, then the beta should be the same as that of the capital structure used in the WACC weights.
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WACC Calculator FAQ’s
How do you calculate WACC?
The equity weight times the cost of equity plus the debt weight times the pre-tax cost of debt and one minus the tax rate. For example, 40% debt at 6% pre-tax with a 25% tax rate contributes 40% × 6% × 75% = 1.8% to WACC.
What’s the difference between WACC and a discount rate?
WACC is an average cost of capital for the entire company. It is often used to discount firm free cash flow and free cash flow to equity is typically discounted at the cost of equity. An alternative rate may be required for a project that is not the same as the default rate.
What is the meaning of WACC is 12%?
It basically suggests that the company must make a return of over 12% on these investments with similar levels of risk to generate value in excess of what the lenders and shareholders expect. If it falls below that mark, there could be a loss of economic value.
What is the role of WACC in mergers and acquisitions?
A DCF can use WACC to discount the unlevered cash flows of a target company and to evaluate if the anticipated gains outweigh the investments in the company. The rate should be commensurate with the risk of the target and its capital structure post-deal.
Last updated: September ️11, 2026
Methodology and source notes
Calculations use the standard two-source WACC formula: equity weight × cost of equity plus debt weight × pre-tax cost of debt × (1 − marginal tax rate). This page does not fetch market data, make investment recommendations, or estimate cost of equity for you.
Reviewed by A Free Tools Team. Last reviewed September 11, 2026. For professional valuation work, confirm market values, tax assumptions, debt yields, beta, and capital structure with current company and market data.
Disclaimer – This WACC calculator is provided for educational and analytical convenience. Results depend on the inputs you supply, and corporate finance decisions require current market data and professional judgment. This tool is not investment advice.