How to Calculate Wacc

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WACC Calculator

Calculate the Weighted Average Cost of Capital for business valuation and investment appraisal.

Your Weighted Average Cost of Capital is:
0.00%

What is WACC?

The Weighted Average Cost of Capital (WACC) represents the average rate a company is expected to pay to all its security holders to finance its assets. It is a critical metric used in financial modeling, particularly in Discounted Cash Flow (DCF) analysis, to determine the present value of a business.

How to Calculate WACC: The Formula

Calculating WACC involves weighting the cost of each capital component (equity and debt) by its proportional weight in the company's total capital structure.

WACC = (E/V × Re) + [(D/V × Rd) × (1 – Tc)]
  • E: Market value of the firm's equity (Market Cap)
  • D: Market value of the firm's debt
  • V: Total value of capital (Equity + Debt)
  • Re: Cost of equity (usually calculated via CAPM)
  • Rd: Cost of debt (yield to maturity on existing debt)
  • Tc: Corporate tax rate

Step-by-Step Calculation Example

Imagine a company with the following financials:

  • Market Equity: $600,000
  • Market Debt: $400,000
  • Cost of Equity: 10%
  • Cost of Debt: 5%
  • Tax Rate: 20%

Step 1: Calculate Total Value (V). $600,000 + $400,000 = $1,000,000.

Step 2: Calculate Equity Weight. $600,000 / $1,000,000 = 0.60 (60%).

Step 3: Calculate Debt Weight. $400,000 / $1,000,000 = 0.40 (40%).

Step 4: Apply Formula. (0.60 × 10%) + [0.40 × 5% × (1 – 0.20)] = 6% + 1.6% = 7.6%.

Why Does the Tax Rate Matter?

Interest payments on debt are generally tax-deductible in most jurisdictions. This creates a "tax shield," making the effective cost of debt lower than the nominal interest rate. This is why we multiply the cost of debt by (1 – Tax Rate) in the WACC equation.

Interpreting Your WACC Result

A lower WACC suggests a company can borrow and raise money at a cheaper rate, allowing it to take on more projects and generate value for shareholders. Investors use WACC as a "hurdle rate"—if a company's Return on Invested Capital (ROIC) is higher than its WACC, it is creating value. If ROIC is lower than WACC, the company is effectively destroying value.

function calculateWACC() { var E = parseFloat(document.getElementById('equityValue').value); var D = parseFloat(document.getElementById('debtValue').value); var Re = parseFloat(document.getElementById('costEquity').value) / 100; var Rd = parseFloat(document.getElementById('costDebt').value) / 100; var Tc = parseFloat(document.getElementById('taxRate').value) / 100; if (isNaN(E) || isNaN(D) || isNaN(Re) || isNaN(Rd) || isNaN(Tc)) { alert("Please enter valid numeric values for all fields."); return; } var V = E + D; if (V <= 0) { alert("Total Value (Equity + Debt) must be greater than zero."); return; } var weightEquity = E / V; var weightDebt = D / V; // WACC = (E/V * Re) + (D/V * Rd * (1-Tc)) var wacc = (weightEquity * Re) + (weightDebt * Rd * (1 – Tc)); var waccPercentage = (wacc * 100).toFixed(2); document.getElementById('waccDisplay').innerText = waccPercentage + "%"; var summaryText = "Capital Structure: " + (weightEquity * 100).toFixed(1) + "% Equity / " + (weightDebt * 100).toFixed(1) + "% Debt. Effective Cost of Debt: " + (Rd * (1 – Tc) * 100).toFixed(2) + "% after tax."; document.getElementById('waccSummary').innerHTML = summaryText; document.getElementById('resultArea').style.display = 'block'; // Smooth scroll to result document.getElementById('resultArea').scrollIntoView({ behavior: 'smooth', block: 'nearest' }); }

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