Risk-Free Rate WACC Calculation: September 2025 Outlook
The Weighted Average Cost of Capital (WACC) remains one of the most critical metrics in corporate finance, acting as the hurdle rate for investment decisions and the discount rate for cash flow valuations. As we approach late 2025, accurate calculation of WACC requires careful consideration of macroeconomic shifts, specifically focusing on the Risk-Free Rate in the context of September 2025 projections.
The Risk-Free Rate in September 2025
The foundation of the Capital Asset Pricing Model (CAPM)—used to calculate the cost of equity—is the risk-free rate ($R_f$). Traditionally, the yield on 10-year U.S. Treasury bonds serves as the proxy for this rate.
For valuations dated September 2025, financial analysts must look at forward yield curves. After the inflationary volatility experienced in previous years, 2025 projections generally suggest a stabilization of rates, though they may remain elevated compared to the pre-2020 era. When using the calculator above, users should input the current or projected yield for long-term government bonds anticipated for Q3 2025.
WACC Formula Breakdown
This calculator utilizes the standard WACC formula tailored for the projected 2025 fiscal environment:
WACC = (E/V × Re) + (D/V × Rd × (1 – T))
E/V: Percentage of financing that is equity.
D/V: Percentage of financing that is debt.
Re (Cost of Equity): Calculated via CAPM: $R_f + \beta(R_m – R_f)$.
Rd (Cost of Debt): The interest rate the company pays on its debt.
(1 – T): The tax shield adjustment, as interest payments are typically tax-deductible.
Why the September 2025 Calculation Matters
Financial modeling often requires forward-looking inputs. For corporations planning fiscal year 2026 budgets or investors valuing future cash flows, the September 2025 snapshot is vital. It represents a period where many central bank policies regarding quantitative tightening are expected to have fully normalized.
Estimating Beta and Market Risk Premium
Beta ($\beta$): This measures a stock's volatility relative to the market. A beta greater than 1.0 implies higher volatility. For 2025 projections, consider if the specific industry sector is becoming more or less sensitive to economic cycles.
Market Risk Premium ($R_m – R_f$): This is the additional return investors demand for holding risky assets over risk-free assets. While the risk-free rate fluctuates, the risk premium has historically hovered between 5% and 6%, though economic uncertainty in 2025 could imply wider spreads.
How to Use This Calculator
Input the Risk-Free Rate: Use the projected 10-year Treasury yield for Sep 2025.
Determine Beta: Input the company's current levered beta.
Market Values: Enter the total market value of equity (Market Cap) and the market value of total debt. Do not use book values for equity.
Tax Rate: Enter the marginal corporate tax rate expected in 2025 (currently flattened at 21% in the US, but subject to legislative changes).
function calculateWACC() {
// 1. Retrieve Inputs
var rfInput = document.getElementById('riskFreeRate').value;
var rmInput = document.getElementById('marketReturn').value;
var betaInput = document.getElementById('beta').value;
var equityInput = document.getElementById('equityValue').value;
var debtInput = document.getElementById('debtValue').value;
var rdInput = document.getElementById('costOfDebt').value;
var taxInput = document.getElementById('taxRate').value;
// 2. Validation
if(rfInput === "" || rmInput === "" || betaInput === "" || equityInput === "" || debtInput === "" || rdInput === "" || taxInput === "") {
alert("Please fill in all fields to calculate WACC.");
return;
}
var rf = parseFloat(rfInput);
var rm = parseFloat(rmInput);
var beta = parseFloat(betaInput);
var equity = parseFloat(equityInput);
var debt = parseFloat(debtInput);
var rd = parseFloat(rdInput);
var tax = parseFloat(taxInput);
if(isNaN(rf) || isNaN(rm) || isNaN(beta) || isNaN(equity) || isNaN(debt) || isNaN(rd) || isNaN(tax)) {
alert("Please enter valid numeric values.");
return;
}
if (equity <= 0 && debt <= 0) {
alert("Total capital (Equity + Debt) must be greater than zero.");
return;
}
// 3. Calculation Logic
// Calculate Weights
var totalValue = equity + debt;
var weightEquity = equity / totalValue;
var weightDebt = debt / totalValue;
// Calculate Cost of Equity (CAPM)
// Formula: Rf + Beta * (Rm – Rf)
var costOfEquity = rf + beta * (rm – rf);
// Calculate After-Tax Cost of Debt
// Formula: Rd * (1 – TaxRate)
var taxDecimal = tax / 100;
var afterTaxCostOfDebt = rd * (1 – taxDecimal);
// Calculate WACC
// Formula: (We * Ke) + (Wd * Kd * (1-T))
// Note: afterTaxCostOfDebt already includes (1-T)
var wacc = (weightEquity * costOfEquity) + (weightDebt * afterTaxCostOfDebt);
var impliedRiskPremium = rm – rf;
// 4. Display Results
document.getElementById('resultsBox').style.display = "block";
document.getElementById('finalWacc').innerText = wacc.toFixed(2) + "%";
document.getElementById('resultCostEquity').innerText = costOfEquity.toFixed(2) + "%";
document.getElementById('resultCostDebt').innerText = afterTaxCostOfDebt.toFixed(2) + "%";
// Format weights as percentage
document.getElementById('resultWeightEquity').innerText = (weightEquity * 100).toFixed(2) + "%";
document.getElementById('resultWeightDebt').innerText = (weightDebt * 100).toFixed(2) + "%";
document.getElementById('resultRiskPremium').innerText = impliedRiskPremium.toFixed(2) + "%";
// Scroll to results
document.getElementById('resultsBox').scrollIntoView({behavior: 'smooth'});
}