WACC Calculator
Calculate the Weighted Average Cost of Capital with our free WACC calculator. Enter equity and debt values, their respective costs, and the corporate tax rate to find the blended cost of capital used for DCF valuations and investment decisions.
The Weighted Average Cost of Capital (WACC) represents the average rate a company pays to finance its assets, weighted by the proportion of each capital source. The formula is: WACC = (E/V) x Re + (D/V) x Rd x (1-T), where E is equity value, D is debt value, V is total capital (E+D), Re is cost of equity, Rd is cost of debt, and T is the tax rate.
Debt financing gets a tax benefit because interest expense is tax-deductible. This makes the after-tax cost of debt lower than the stated interest rate. For example, at a 6% interest rate and 21% tax rate, the after-tax cost of debt is only 4.74%. This tax shield is one reason companies use debt financing despite the added risk.
WACC is the standard discount rate used in Discounted Cash Flow (DCF) valuations and is the hurdle rate for capital budgeting decisions. A project should only be accepted if its expected return exceeds the WACC. Most large companies have WACC between 7-12%. Lower WACC allows a company to take on projects with lower returns, creating a competitive advantage in acquisitions and capital allocation.