WACC calculator
Weighted average cost of capital blends the cost of equity and the after-tax cost of debt by how much of each a company uses. Enter your figures below.
Optional: estimate the cost of equity with CAPM
The WACC formula
WACC = E/V × Re + D/V × Rd × (1 − T)
- E and D are the market values of equity and debt, and V = E + D.
- Re is the cost of equity and Rd the pre-tax cost of debt.
- T is the tax rate. Interest is usually tax-deductible, so debt is cheaper after tax by a factor of (1 − T).
Worked example
A company has equity worth 600 and debt worth 400, so V = 1,000. Equity weight is 60% and debt weight is 40%. The cost of equity is 10%, the pre-tax cost of debt is 5% and the tax rate is 25%.
After-tax cost of debt = 5% × (1 − 0.25) = 3.75%. WACC = 0.60 × 10% + 0.40 × 3.75% = 6.00% + 1.50% = 7.50%. Use “Fill example” above to reproduce it.
Estimating the cost of equity (CAPM)
The capital asset pricing model estimates the cost of equity as Re = Rf + β × ERP, where Rf is the risk-free rate, β is the stock's sensitivity to the market and ERP is the equity risk premium (expected market return minus the risk-free rate). With Rf = 4%, β = 1.2 and ERP = 5%, Re = 4% + 1.2 × 5% = 10%. The helper above fills the cost of equity for you.
What WACC is used for
- Discount rate for the free cash flows of a firm in a discounted cash flow (DCF) valuation.
- Hurdle rate for investments with about the same risk as the firm's existing business: a project is attractive when its expected return exceeds WACC.
Common mistakes
- Using book values of equity instead of market values, which usually understates the weight of equity.
- Forgetting the tax shield, so the cost of debt is overstated.
- Applying the firm-wide WACC to a project that is much riskier or safer than the firm.
- Using different units, for example a cost of equity entered as 0.10 and a cost of debt as 5.
WACC and banks
WACC is mostly applied to non-financial companies. For a bank, debt such as deposits and wholesale funding is part of operations rather than a financing choice, so analysts commonly value banks through equity measures (cost of equity, price to book, dividend discount models) and look at regulatory ratios such as the CET1 ratio and the capital adequacy ratio instead.
Frequently asked questions
What is a good WACC?
There is no universal good figure. A lower WACC means cheaper financing, and a sensible level depends on the industry, country rates and the firm's risk. Compare a WACC with peers and with the returns on the firm's projects.
Should I use book or market values for the weights?
Market values are preferred because they reflect what investors would pay today. Book value of debt is often used as a proxy when the market value of debt is not available.
Why is debt cheaper than equity?
Lenders are paid before shareholders and bear less risk, so they accept a lower return, and interest is usually tax-deductible. Equity holders are paid last and require a higher return.
Can WACC be lower than the cost of debt?
It can be lower than the pre-tax cost of debt because of the tax shield. WACC is a weighted average, so it always lies between the after-tax cost of debt and the cost of equity.
How do I add preferred stock?
Add a third term: weight of preferred × cost of preferred. The weights of equity, debt and preferred must then add up to 100%.
Formulas are standard corporate-finance definitions (WACC and the capital asset pricing model). This is an educational tool, not investment advice. Checked 15 October 2026.