WACC (Weighted Average Cost of Capital) Calculator
Equity Details
Debt Details
Your Weighted Average Cost of Capital is:
0%
function calculateWACC() {
var E = parseFloat(document.getElementById('equityValue').value);
var Re = parseFloat(document.getElementById('costOfEquity').value);
var D = parseFloat(document.getElementById('debtValue').value);
var Rd = parseFloat(document.getElementById('costOfDebt').value);
var T = parseFloat(document.getElementById('taxRate').value);
if (isNaN(E) || isNaN(Re) || isNaN(D) || isNaN(Rd) || isNaN(T)) {
alert("Please enter valid numbers in all fields.");
return;
}
var V = E + D;
var weightEquity = E / V;
var weightDebt = D / V;
var taxFactor = (1 – (T / 100));
// Formula: (E/V * Re) + (D/V * Rd * (1-T))
var wacc = (weightEquity * (Re / 100)) + (weightDebt * (Rd / 100) * taxFactor);
var waccPercentage = (wacc * 100).toFixed(2);
var resultDiv = document.getElementById('waccResult');
var output = document.getElementById('waccOutput');
var breakdown = document.getElementById('breakdown');
output.innerHTML = waccPercentage + "%";
breakdown.innerHTML = "Breakdown:" +
"• Total Capital (V): $" + V.toLocaleString() + "" +
"• Equity Weight: " + (weightEquity * 100).toFixed(1) + "%" +
"• Debt Weight: " + (weightDebt * 100).toFixed(1) + "%" +
"• After-tax Cost of Debt: " + ((Rd / 100) * taxFactor * 100).toFixed(2) + "%";
resultDiv.style.display = "block";
}
Understanding the Weighted Average Cost of Capital (WACC)
The Weighted Average Cost of Capital (WACC) is a critical financial metric representing the average rate a company is expected to pay to all its security holders to finance its assets. It is essentially the "hurdle rate" that a company must overcome to create value for its investors.
The WACC Formula
WACC = (E/V × Re) + (D/V × Rd × (1 – Tc))
- E: Market Value of Equity (Market Cap)
- D: Market Value of Debt
- V: Total Capital (E + D)
- Re: Cost of Equity
- Rd: Pre-tax Cost of Debt
- Tc: Corporate Tax Rate
Why is WACC Important?
Investment bankers, corporate analysts, and investors use WACC for several purposes:
- Investment Appraisal: It serves as the discount rate for Discounted Cash Flow (DCF) analysis. If a project's Internal Rate of Return (IRR) is lower than the WACC, the project should generally be rejected.
- Valuation: It is used to determine the Net Present Value (NPV) of future cash flows.
- Mergers & Acquisitions: It helps in determining the purchase price of a target company.
Real-World Example
Imagine "TechCorp" has the following financials:
- Market Value of Equity: $1,000,000
- Market Value of Debt: $500,000
- Cost of Equity: 12%
- Cost of Debt: 5%
- Tax Rate: 25%
First, we calculate the weights. Total value is $1.5M. Equity is 66.7% and Debt is 33.3%. The after-tax cost of debt is 5% * (1 – 0.25) = 3.75%.
Calculation: (0.667 * 0.12) + (0.333 * 0.0375) = 9.25%. TechCorp's WACC is 9.25%.