WACC Calculator: Calculate the Weighted Average Cost of Capital
A professional tool to help you calculate the weighted average cost of capital in Excel or directly in your browser.
WACC Calculator
Enter your financial data below to determine the company's cost of capital. All calculations update automatically.
Total market capitalization of the company.
Please enter a valid positive number.
Expected return required by equity investors (often calculated via CAPM).
Please enter a valid positive number.
Total value of company's interest-bearing debt.
Please enter a valid positive number.
Effective interest rate the company pays on its debts.
Please enter a valid positive number.
The marginal corporate tax rate (interest tax shield).
Please enter a valid percentage (0-100).
Weighted Average Cost of Capital (WACC)
8.46%
Formula: WACC = (We × Re) + (Wd × Rd × (1 – T))
Capital Structure Breakdown
Equity (We)
Debt (Wd)
| Metric | Value | Description |
|---|
Everything You Need to Know to Calculate the Weighted Average Cost of Capital in Excel
Table of Contents
What is the Weighted Average Cost of Capital?
The Weighted Average Cost of Capital (WACC) represents the average rate of return a company is expected to pay to all its security holders to finance its assets. It is a critical financial metric used by analysts, investors, and corporate finance professionals to evaluate investment opportunities.
Whether you are trying to calculate the weighted average cost of capital in Excel for a corporate valuation or using this online tool for a quick estimate, understanding WACC is essential. It serves as the minimum return a company must earn on its existing asset base to satisfy its creditors, owners, and other capital providers.
Common misconceptions include thinking WACC is solely determined by debt interest rates or that a lower WACC is always better without considering the risk profile. In reality, it balances the cost of equity (which is generally higher due to risk) and the cost of debt (which is lower and tax-deductible).
WACC Formula and Mathematical Explanation
To accurately calculate the weighted average cost of capital in Excel or manually, you need to understand the underlying math. The formula weights the cost of equity and the after-tax cost of debt according to their proportion in the overall capital structure.
WACC = (E/V × Re) + (D/V × Rd × (1 – T))
Variable Definitions
| Variable | Meaning | Unit | Typical Range |
|---|---|---|---|
| E | Market Value of Equity | Currency ($) | Positive Value |
| D | Market Value of Debt | Currency ($) | Positive Value |
| V | Total Value (E + D) | Currency ($) | Positive Value |
| Re | Cost of Equity | Percentage (%) | 6% – 15% |
| Rd | Cost of Debt | Percentage (%) | 2% – 10% |
| T | Corporate Tax Rate | Percentage (%) | 15% – 35% |
The term (1 – T) represents the tax shield. Since interest payments on debt are often tax-deductible, the effective cost of debt is reduced by the tax rate, making debt a cheaper form of financing compared to equity.
Practical Examples (Real-World Use Cases)
Example 1: Tech Startup (High Growth, High Equity)
Imagine a tech startup that is primarily funded by venture capital. They have very little debt because they don't have the steady cash flows to service loans yet. To calculate the weighted average cost of capital for this firm:
- Equity (E): $10,000,000
- Cost of Equity (Re): 15% (High risk)
- Debt (D): $500,000
- Cost of Debt (Rd): 6%
- Tax Rate (T): 21%
Since the weight of equity is dominant (~95%), the WACC will be very close to the cost of equity, around 14.5%. This high hurdle rate means the company must find projects with very high returns to justify investment.
Example 2: Utility Company (Stable, High Debt)
Conversely, a utility company with stable cash flows might carry significant debt. If you were to calculate the weighted average cost of capital in Excel for this firm:
- Equity (E): $2,000,000
- Cost of Equity (Re): 8% (Lower risk)
- Debt (D): $3,000,000
- Cost of Debt (Rd): 4%
- Tax Rate (T): 21%
Here, debt comprises 60% of the capital. The tax shield effectively lowers the cost of debt to 3.16%. The resulting WACC would be approximately 5.1%. This lower rate reflects the lower risk and efficient use of debt financing.
How to Use This WACC Calculator
While you can calculate the weighted average cost of capital in Excel using formulas like =SUMPRODUCT() for weights, this tool simplifies the process:
- Enter Market Value of Equity: Input the total market capitalization (Share Price × Shares Outstanding).
- Enter Cost of Equity: Input the required return for shareholders. This is often derived using the Cost of Equity Calculator or CAPM.
- Enter Market Value of Debt: Sum up short-term and long-term interest-bearing liabilities.
- Enter Cost of Debt: This is typically the yield to maturity on the company's existing debt.
- Enter Tax Rate: Input the effective corporate tax rate to account for the tax shield benefit.
- Review Results: The tool instantly computes WACC, total valuation, and the specific weights of debt and equity.
Use the "Copy Results" button to paste the data directly into your reports or when you proceed to calculate the weighted average cost of capital in Excel for further modeling.
Key Factors That Affect WACC Results
Several macroeconomic and company-specific factors influence the output when you calculate the weighted average cost of capital in Excel:
- Interest Rates: As central banks raise rates, the risk-free rate increases. This drives up both the cost of debt and the cost of equity, leading to a higher WACC. See our Interest Rate Trends page for more.
- Stock Market Volatility: A higher "Beta" in the CAPM model increases the Cost of Equity. If the market perceives the stock as risky, investors demand a higher return.
- Capital Structure: Changing the mix of debt and equity alters the WACC. Adding cheap debt generally lowers WACC up to a point, after which bankruptcy risk rises, increasing the cost of both debt and equity.
- Corporate Tax Policy: Higher tax rates increase the value of the tax shield, effectively lowering the after-tax cost of debt and reducing WACC.
- Company Credit Rating: A downgrade in credit rating increases the default spread, making debt more expensive.
- General Economic Conditions: Inflation expectations can increase the nominal cost of capital required by investors to maintain purchasing power.
Frequently Asked Questions (FAQ)
Can I calculate the weighted average cost of capital in Excel automatically?
Yes, Excel is an excellent tool for this. You can set up cells for Equity, Debt, Re, Rd, and Tax, and use a formula like
=(E/(E+D)*Re) + (D/(E+D)*Rd*(1-T)). Our tool replicates this logic for quick checks.Should I use Book Value or Market Value?
Always use Market Value for Equity and Debt when possible. Market values reflect the current economic reality and expectations of investors, whereas book values are historical accounting figures.
What is a "Good" WACC?
A "good" WACC depends on the industry. Tech companies often have WACCs over 10%, while stable utilities might be under 6%. Generally, a lower WACC indicates a cheaper cost of funding and a higher valuation.
How does WACC relate to Discounted Cash Flow (DCF)?
WACC is the discount rate used in DCF analysis to calculate the Net Present Value (NPV) of future cash flows. Visit our Discounted Cash Flow Guide to learn more.
Why is the cost of debt multiplied by (1-Tax)?
Interest expenses are tax-deductible in many jurisdictions. This "tax shield" means the actual cash cost of debt to the company is lower than the nominal interest rate.
What if the company has Preferred Stock?
If preferred stock exists, you must add a third component to the formula:
+ (P/V × Rp), where P is the value of preferred stock and Rp is the cost of preferred stock.Does WACC change over time?
Yes, WACC is dynamic. It changes daily with stock prices, interest rates, and changes in the company's debt levels.
Can WACC be used for all projects?
Not necessarily. WACC reflects the risk of the entire company. For projects with significantly different risk profiles than the core business, a project-specific discount rate should be used.