Weighted Cost of Capital Calculator
:root {
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–success-green: #28a745;
–light-background: #f8f9fa;
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–border-color: #dee2e6;
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.loan-calc-container {
font-family: 'Segoe UI', Tahoma, Geneva, Verdana, sans-serif;
max-width: 800px;
margin: 40px auto;
padding: 30px;
background-color: var(–white);
border-radius: 8px;
box-shadow: 0 4px 15px rgba(0, 0, 0, 0.1);
color: var(–gray-text);
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flex: 1 1 150px; /* Allow labels to grow and shrink, base width 150px */
font-weight: bold;
color: var(–primary-blue);
margin-bottom: 5px; /* Small margin below label if stacked */
text-align: left; /* Align labels to the left */
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.input-group input[type="number"],
.input-group input[type="text"] {
flex: 1 1 200px; /* Allow inputs to grow and shrink, base width 200px */
padding: 10px 12px;
border: 1px solid var(–border-color);
border-radius: 4px;
font-size: 1rem;
box-sizing: border-box; /* Include padding and border in element's total width and height */
transition: border-color 0.3s ease;
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.input-group input[type="text"]:focus {
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color: var(–white);
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margin-top: 20px;
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button:hover {
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#result {
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}
Weighted Cost of Capital (WACC) Calculator
WACC: 0.00%
(Weighted Average Cost of Capital)
Understanding the Weighted Average Cost of Capital (WACC)
The Weighted Average Cost of Capital (WACC) is a crucial financial metric that represents a company's blended cost of capital across all sources, including common stock, preferred stock, bonds, and any other debt. It is used to measure the rate of return a company must earn on its existing asset base to satisfy its creditors, owners, and other providers of capital.
WACC is essential for several business decisions, including:
- Investment Appraisal: Companies use WACC as the discount rate when evaluating potential projects and investments. A project's expected return should ideally exceed the WACC to be considered value-adding.
- Valuation: WACC is a key component in discounted cash flow (DCF) analysis, helping to determine the intrinsic value of a company.
- Performance Measurement: It serves as a benchmark to assess the company's overall performance and its ability to generate returns above its cost of capital.
The WACC Formula
The WACC is calculated using the following formula:
WACC = (E/V * Re) + (D/V * Rd * (1 – Tc))
Where:
- E = Market Value of the company's Equity
- D = Market Value of the company's Debt
- V = Total Market Value of the company's financing (E + D)
- Re = Cost of Equity
- Rd = Cost of Debt
- Tc = Corporate Tax Rate
The formula essentially calculates the proportion of equity and debt in the company's capital structure, multiplies each by their respective costs, and then adjusts the cost of debt for the tax deductibility of interest payments. The tax shield on debt reduces the effective cost of debt to the company.
Calculating the Components:
- Market Value of Equity (E): This is the current market capitalization of the company, calculated by multiplying the current share price by the number of outstanding shares.
- Cost of Equity (Re): This is the return a company requires to compensate its equity investors. It's often estimated using models like the Capital Asset Pricing Model (CAPM), which considers the risk-free rate, the stock's beta, and the market risk premium.
- Market Value of Debt (D): This represents the current market value of all outstanding debt, including bonds and loans. In practice, the book value of debt is often used as a proxy if market values are not readily available.
- Cost of Debt (Rd): This is the effective interest rate a company pays on its current debt. It can be estimated by looking at the yields on the company's outstanding bonds or by assessing the rates on new borrowings.
- Corporate Tax Rate (Tc): This is the company's marginal corporate tax rate.
How to Use This Calculator:
Simply enter the required financial figures into the fields above. Ensure you use the correct decimal format for rates (e.g., 12% should be entered as 0.12). The calculator will then compute your company's WACC, providing a vital metric for financial decision-making.
Example:
Consider a company with:
- Market Value of Equity (E) = $100,000,000
- Cost of Equity (Re) = 12% (or 0.12)
- Market Value of Debt (D) = $50,000,000
- Cost of Debt (Rd) = 5% (or 0.05)
- Corporate Tax Rate (Tc) = 21% (or 0.21)
Calculations:
- Total Market Value (V) = E + D = $100,000,000 + $50,000,000 = $150,000,000
- Weight of Equity (E/V) = $100,000,000 / $150,000,000 = 0.6667
- Weight of Debt (D/V) = $50,000,000 / $150,000,000 = 0.3333
- After-Tax Cost of Debt = Rd * (1 – Tc) = 0.05 * (1 – 0.21) = 0.05 * 0.79 = 0.0395
- WACC = (0.6667 * 0.12) + (0.3333 * 0.0395)
- WACC = 0.080004 + 0.013165
- WACC ≈ 0.09317 or 9.32%
This means the company needs to earn at least 9.32% on its investments to satisfy its capital providers.
function calculateWACC() {
var marketValueEquity = parseFloat(document.getElementById("marketValueEquity").value);
var costOfEquity = parseFloat(document.getElementById("costOfEquity").value);
var marketValueDebt = parseFloat(document.getElementById("marketValueDebt").value);
var costOfDebt = parseFloat(document.getElementById("costOfDebt").value);
var corporateTaxRate = parseFloat(document.getElementById("corporateTaxRate").value);
var resultDiv = document.getElementById("result");
// Input validation
if (isNaN(marketValueEquity) || marketValueEquity <= 0 ||
isNaN(costOfEquity) || costOfEquity < 0 ||
isNaN(marketValueDebt) || marketValueDebt <= 0 ||
isNaN(costOfDebt) || costOfDebt < 0 ||
isNaN(corporateTaxRate) || corporateTaxRate 1) {
resultDiv.innerHTML = "Please enter valid positive numbers for all fields. Tax rate should be between 0 and 1.";
resultDiv.style.backgroundColor = "#dc3545"; // Red for error
resultDiv.style.display = "block";
return;
}
var totalMarketValue = marketValueEquity + marketValueDebt;
var weightOfEquity = marketValueEquity / totalMarketValue;
var weightOfDebt = marketValueDebt / totalMarketValue;
var afterTaxCostOfDebt = costOfDebt * (1 – corporateTaxRate);
var wacc = (weightOfEquity * costOfEquity) + (weightOfDebt * afterTaxCostOfDebt);
// Display the result
resultDiv.innerHTML = "WACC: " + (wacc * 100).toFixed(2) + "%" +
"
(Weighted Average Cost of Capital)";
resultDiv.style.backgroundColor = "#28a745"; // Green for success
resultDiv.style.display = "block";
}