Work out the weighted average cost of capital from equity, debt, their costs and the tax rate.
Calculated locally in your browser.
How is WACC calculated?
WACC = (E ÷ V × Re) + (D ÷ V × Rd × (1 − Tc)), where E and D are the values of equity and debt, V = E + D, Re and Rd are their costs, and Tc is the tax rate. Interest is tax-deductible, so debt is cheaper. With $600k equity at 10%, $400k debt at 6% and 25% tax: 6% + 1.8% = 7.8%.
Understanding your result
Interest on debt is tax-deductible, so the debt cost is multiplied by (1 − tax rate); this tax shield makes debt cheaper than equity. WACC is widely used as the discount rate in discounted-cash-flow valuation and as a hurdle rate for new projects.
Formula and method
WACC = (E ÷ V × Re) + (D ÷ V × Rd × (1 − Tc)), where E and D are the values of equity and debt, V = E + D, Re and Rd are their costs and Tc is the tax rate.
Worked example
With $600,000 equity at 10%, $400,000 debt at 6% and a 25% tax rate: 0.6 × 10% + 0.4 × 6% × 0.75 = 6% + 1.8% = 7.8%.
How to use this tool
- Enter the market value of equity and of debt.
- Enter the cost of equity and the pre-tax cost of debt.
- Enter the corporate tax rate.
- Read the WACC and its equity and debt components.
Common mistakes to avoid
- Using book values instead of market values for equity and debt.
- Forgetting the tax shield on the cost of debt.
- Entering the cost of debt after tax when the pre-tax figure is expected.
About the WACC Calculator
The WACC Calculator works out a company's weighted average cost of capital — the blended return it must earn to satisfy both shareholders and lenders. It weights the cost of equity and the after-tax cost of debt by their share of total capital.
Who should use this tool
Finance students, analysts, founders and investors valuing a business or project.
Benefits
- Blends equity and debt costs into one discount rate.
- Applies the tax shield to the cost of debt automatically.
- Shows each weight and component behind the result.
- Runs privately in your browser — no figures uploaded.
Practical use cases
- Setting a discount rate for a DCF valuation.
- Judging whether a project clears its cost of capital.
- Comparing the capital cost of different financing mixes.
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Frequently asked questions
What does WACC tell me?
It is the minimum overall return a company must earn on its assets to keep both shareholders and lenders satisfied, and a common discount rate for valuation.
Should I use market or book values?
Market values are preferred because they reflect what equity and debt are actually worth today, which is what investors require a return on.
Why is the cost of debt reduced by tax?
Interest is tax-deductible, so each dollar of interest costs the company less after tax. Multiplying by (1 − tax rate) captures this saving.