What is the weighted average cost of capital?
A company pays for the money it uses. Shareholders want a return for taking equity risk. Lenders want interest. The weighted average cost of capital — WACC — is those two prices blended together, weighted by how much of each the company actually carries. It is the rate a business pays for every dollar of capital on its books.
Here is the whole idea in one line. A company funded with $600,000 of equity that costs 12% and $400,000 of debt that costs 6%, taxed at 21%, has a WACC of 9.10%. Sixty cents of every capital dollar is equity priced at 12%. Forty cents is debt priced at an after-tax 4.74%. Blend them and you get 9.10%.
The idea comes out of the capital-structure work Modigliani and Miller published in 1958, and it got its modern shape once CAPM arrived in the mid-1960s to put a number on the cost of equity. Today it does two jobs. It is the discount rate in a discounted cash flow valuation — the rate that drags future cash back to what it is worth now. And it is a hurdle rate: a project earning less than the WACC destroys value, because it returns less than the capital funding it costs.
How to use the WACC calculator
Four numbers and a tax rate. The WACC calculator updates the result as you type — there is no Calculate button to press.
- Market value of equity (E). For a listed company that is share price × shares outstanding — market capitalization, not the equity line on the balance sheet. For a private company, use the latest valuation. Dollar signs and commas are fine;
$600,000reads the same as600000. - Market value of debt (D). Total interest-bearing borrowings — loans, notes, bonds. Book value is a fair proxy unless rates have moved a long way since the debt was issued. Enter zero for an all-equity company and the answer is simply the cost of equity.
- Cost of equity (Re), as a percent. Type
12, not0.12. This is the return shareholders require for holding the stock instead of something safer. No figure? Open the CAPM section and derive one. - Cost of debt (Rd), as a percent, before tax. Use the blended rate across all the borrowings, not the rate on the newest loan.
- Corporate tax rate (Tc). Pre-filled at 21%, the US federal rate. Swap in your own combined federal and state rate if you have one.
- Read the working, not just the rate. The weights show how the structure splits, total capital confirms you typed the amounts you meant, and the after-tax cost of debt shows what the tax shield is worth. Copy takes the rate; Copy breakdown takes all of it plus the substituted formula line.
Most cost-of-capital tools sit behind something — a finance suite billed per seat, a spreadsheet template gated behind an email form, a trial that expires before your model is finished. This is the calculator on its own. No account, nothing to cancel, and the arithmetic runs in your browser.
One thing to watch. The tax box starts at 21%, but it is a real field, not a floor. Clear it and the calculator takes you at your word: it computes at 0% tax, and the same 60/40 structure returns 9.60% instead of 9.10%. You will see (1 − 0.00) sitting in the formula line underneath, which is how you catch it.
The formula behind WACC
WACC = (E/V × Re) + (D/V × Rd × (1 − Tc))
Each piece, in plain terms. E is the market value of equity and D the market value of debt. V is the two added together — total capital. E/V and D/V are the weights: the share of the funding each source provides. Re is the cost of equity, Rd the pre-tax cost of debt, and Tc the corporate tax rate.
Everything except (1 − Tc) is an ordinary weighted average. That last term is the tax shield. Interest is deductible, so every dollar of interest a company pays shaves its tax bill, and debt ends up costing less than its stated coupon.
Run the canonical case through it. Equity of $600,000, debt of $400,000, cost of equity 12%, cost of debt 6%, tax 21%.
- Total capital: V = 600,000 + 400,000 = 1,000,000.
- Weights: E/V = 600,000 ÷ 1,000,000 = 60.00%. D/V = 40.00%.
- After-tax cost of debt: 6% × (1 − 0.21) = 4.74%. The tax shield is worth 1.26 percentage points.
- Blend: (0.60 × 12.00%) + (0.40 × 4.74%) = 7.20% + 1.896% = 9.10%.
The WACC calculator prints that last step back to you with your own numbers substituted in, exactly like this:
WACC = (0.60 × 12.00%) + (0.40 × 6.00% × (1 − 0.21)) = 9.10%
That line exists so you can audit the answer instead of trusting it. If the weights look wrong, you typed a market value wrong. If the tax term looks wrong, check the tax box.
If you do not have a cost of equity, the CAPM panel derives one from Re = Rf + β(Rm − Rf). With a risk-free rate of 4%, a beta of 1.2 and an expected market return of 10%, that is 4 + 1.2 × 6 = 11.2%, written straight into the cost-of-equity field above. Edit it afterwards and your number wins.
WACC at different capital structures
The weighted average cost of capital moves with the mix, and the mix is the part a company controls. Same company below, same two prices, only the split changing. Cost of equity 12%, cost of debt 6%, tax 21%, total capital $1,000,000.
| Equity (E/V) | Debt (D/V) | After-tax cost of debt | WACC |
|---|---|---|---|
| 100% | 0% | — | 12.00% |
| 80% | 20% | 4.74% | 10.55% |
| 60% | 40% | 4.74% | 9.10% |
| 50% | 50% | 4.74% | 8.37% |
| 40% | 60% | 4.74% | 7.64% |
| 20% | 80% | 4.74% | 6.19% |
| 0% | 100% | 4.74% | 4.74% |
Read down the last column and the pull of debt is obvious: swapping equity for borrowing drops the blended rate from 12.00% to 4.74%. Which raises the question every finance class asks next — why doesn't every company fund itself entirely with debt?
Because the two prices in this table are not fixed. They are only fixed here, in a table holding them still. In the real world, the more a company borrows, the riskier both its equity and its debt become. Lenders ask for more. Shareholders, now standing behind a bigger stack of creditors, ask for more too. Past a certain point Re and Rd climb faster than the tax shield saves, and the curve turns back up. The table shows the shield; it cannot show the risk the shield is buying.
The tax rate matters less than people expect. Same 60/40 structure, same two rates, tax rate varying:
| Tax rate (Tc) | After-tax cost of debt | WACC |
|---|---|---|
| 0% | 6.00% | 9.60% |
| 15% | 5.10% | 9.24% |
| 21% | 4.74% | 9.10% |
| 25% | 4.50% | 9.00% |
| 35% | 3.90% | 8.76% |
A 35-point swing in the tax rate moves the WACC by 0.84 points. Worth getting right, but it is not where the sensitivity lives. Your cost-of-equity estimate is — at a 60% equity weight, every point you move Re moves the WACC by 0.6 points.
Where a WACC goes wrong
The most expensive mistake is book values. Using the balance-sheet equity line instead of market capitalization overweights debt, sometimes wildly. Take the same company and suppose its book equity is $200,000 against $400,000 of debt: the weights flip to 33.33%/66.67% and the WACC falls from 9.10% to 7.16%. That is nearly two points of error, all of it in the direction that makes every project in your model look better than it is. Debt is more forgiving — it is repaid at face value and trades near it — so book value is a defensible stand-in there. Equity is where the substitution does the damage.
Three more worth knowing. A company with losses carried forward has no taxable income to shield, so it is paying the full coupon today whatever the statutory rate says — use an effective rate near zero, not 21%. A WACC reflects the risk of the business you already run, so applying it to a project in a genuinely different risk class understates the discount rate that project deserves; it is a well-worn way for a safe company to talk itself into a risky bet. And the weights are circular in principle — the market value of equity depends on a valuation that depends on the discount rate — which practitioners resolve by using target weights rather than iterating forever.
A few inputs behave in ways worth flagging. A negative cost of debt is accepted and computed normally, because negative-yield debt has been real in European and Japanese markets. Market values are the one thing that cannot go negative: enter a negative amount and the WACC calculator answers "Market values don't go negative" rather than returning a quietly wrong number. And a tax rate above 100% is clamped to 100% with a note saying so, instead of being silently accepted.
Related calculations
The WACC is rarely the last number you need. Once you have a rate, the NPV calculator takes it in its discount-rate field and turns a stream of projected cash flows into a present value and an IRR — that is the single most common next step, and the reason the two tools link to each other.
If you are checking a rate against actual performance rather than projected, the ROI calculator gives total and annualized return on an investment you can compare to the hurdle. The CAGR calculator does the same job for a growth rate over any period. For the mechanics underneath all of this, the compound interest calculator shows how a rate applied year after year actually behaves, and the weighted average calculator handles the general Σ(value × weight) ÷ Σ(weight) case when your weights are not a capital structure. Startups working out how long the money lasts before any of this applies want the burn rate calculator.
Frequently asked questions
Is WACC the same as the discount rate?
Usually, but not always. For valuing a whole company's unlevered free cash flows, the WACC is the right discount rate and the two words get used interchangeably. For valuing cash flows that belong only to shareholders — levered free cash flow, or a dividend discount model — the correct rate is the cost of equity on its own, not the blend. Match the rate to whose cash you are discounting.
What tax rate should I use — statutory or effective?
Effective, if you can work it out, because it is what the company actually pays. The statutory 21% is a reasonable default for a profitable US company, and it is what the tax field starts at. But a business with large carried-forward losses shields nothing, and one operating across several jurisdictions may sit well away from any single country's headline rate. If the gap between statutory and effective is a few points, the table above tells you roughly what it costs you: not much.
Can I calculate WACC for a private company?
Yes, with more judgment at each step. Equity value comes from the most recent funding round or valuation rather than a share price. The cost of equity usually comes from CAPM using an industry beta from comparable listed companies, often with a size or illiquidity premium added on top. The debt side is the easy half — you know what you borrowed and at what rate. Expect a range, not a point estimate, and run the WACC calculator two or three times across it.
Does adding more debt always lower the WACC?
No, and the table above is deliberately misleading on this point. Holding Re and Rd fixed, more debt always lowers the blend — that is just arithmetic. Let them move, and both rise as borrowing increases, because everyone's claim gets riskier. There is a mix where the tax shield stops paying for the added risk, and past it the WACC rises again. Nobody can locate that point precisely, which is why capital-structure arguments outlive the people having them.
Why is my WACC different from the one a financial data provider shows?
Almost always the cost of equity. Beta depends on the measurement window, the frequency of the return data, the index you regress against, and whether the provider adjusts it toward 1.0 — reasonable choices there can differ by 0.3 or more, which at a 60% equity weight is worth well over a point of WACC. Equity risk premium assumptions differ too. A gap of a point or two between two carefully built estimates is normal, not a mistake.
Does this WACC calculator store or send my numbers anywhere?
No. Every calculation runs in your browser — the figures you type are never uploaded, and there is no account to create before the number appears. This is the complete tool, not a preview of a paid one: there is no plan above it holding the rest back. Microapp gives 10% of every dollar it earns to charity, off the top and audited quarterly, which we would rather tell you at the bottom of an article than behind a signup form.