# WACC Calculator

Calculate WACC from equity value, debt value, cost of equity, cost of debt, and tax rate. Essential for DCF valuations and capital budgeting.

## What this calculates

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.

## Inputs

- **Market Value of Equity** ($) — min 0 — The market capitalization or total equity value.
- **Market Value of Debt** ($) — min 0 — The total market value of outstanding debt.
- **Cost of Equity** (%) — min 0, max 50 — The required return on equity (often estimated via CAPM).
- **Cost of Debt** (%) — min 0, max 30 — The interest rate on the company's debt (pre-tax).
- **Corporate Tax Rate** (%) — min 0, max 50 — The marginal corporate tax rate (interest is tax-deductible).

## Outputs

- **WACC** — formatted as percentage — The Weighted Average Cost of Capital. Used as the discount rate in DCF valuations.
- **Equity Weight** — formatted as percentage — The proportion of total capital financed by equity.
- **Debt Weight** — formatted as percentage — The proportion of total capital financed by debt.
- **After-Tax Cost of Debt** — formatted as percentage — The effective cost of debt after the tax deduction on interest payments.

## Details

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.

## Frequently Asked Questions

**Q: What is WACC used for?**

A: WACC is primarily used as the discount rate in Discounted Cash Flow (DCF) valuations to find the present value of a company's future cash flows. It is also the hurdle rate for capital budgeting: a project should only be undertaken if its expected return exceeds WACC. Investment bankers, analysts, and corporate finance teams use WACC daily for valuations and investment decisions.

**Q: How is cost of equity estimated?**

A: Cost of equity is typically estimated using the Capital Asset Pricing Model (CAPM): Re = Risk-Free Rate + Beta x Market Risk Premium. The risk-free rate is the 10-year Treasury yield, beta measures the stock's volatility relative to the market, and the market risk premium is the expected excess return of the market over the risk-free rate (historically about 5-7%).

**Q: Why does debt have a tax benefit?**

A: Interest expense on debt is tax-deductible, reducing a company's taxable income. This effectively makes debt cheaper. If a company pays 6% interest and has a 21% tax rate, the after-tax cost is 6% x (1 - 0.21) = 4.74%. Equity has no such tax benefit because dividends are not tax-deductible. This is why WACC uses the after-tax cost of debt.

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Source: https://vastcalc.com/calculators/finance/wacc
Category: Finance
Last updated: 2026-04-21