WACC Calculator
Weighted average cost of capital from equity and debt weights, with cost of equity via CAPM, after-tax cost of debt and the dollar value of the interest tax shield.
WACC Calculator: with the default inputs, wacc is 8.21%.
Market capitalization, not book equity. For a private company, your best estimate of enterprise equity value.
Interest-bearing debt including capitalized leases. Book value is an acceptable proxy unless the debt trades far from par.
The government bond yield matching your cash-flow horizon — usually the 10-year Treasury.
Sensitivity to the market. 1.0 moves with the index; utilities sit near 0.5, high-growth tech above 1.5.
Expected return of equities over the risk-free rate. Damodaran's implied US premium has run 4–6% for years.
The yield on the company's debt today — not the coupon on debt issued years ago.
21% is the US federal corporate rate; add state tax for an all-in marginal rate, typically 24–26%.
- In words
- A capital structure of 70% equity at 9.7% and 30% debt at 4.74% after tax blends to a WACC of 8.21%. Projects returning less than that destroy value.
- Cost of equity (CAPM)
- 9.7%
- After-tax cost of debt
- 4.74%
- Weight of equity
- 70%
- Weight of debt
- 30%
- Total capital
- $1,000,000,000
- Equity's contribution to WACC
- 6.79%
- Debt's contribution to WACC
- 1.42%
- Pre-tax WACC
- 8.59%The same blend before the tax shield, for comparison.
- Annual interest tax shield
- $3,780,000Debt × pre-tax cost of debt × tax rate — the cash the deduction saves each year.
- Debt / equity
- 0.43
Assumptions
- CAPM for the cost of equity: a single beta, a single equity risk premium, and one risk-free rate.
- Constant capital structure and constant tax rate over the whole forecast horizon.
- The interest tax shield is fully usable — the company has taxable income to shelter.
- Debt is measured at market value where it differs materially from book; leases are treated as debt.
- No preferred stock, hybrid securities or off-balance-sheet financing.
- Market value$700,000,000100%
| Debt % of capital | Debt / equity | WACC |
|---|---|---|
| 0% | 0 | 9.7% |
| 10% | 0.11 | 9.2% |
| 20% | 0.25 | 8.71% |
| 30% | 0.43 | 8.21% |
| 40% | 0.67 | 7.72% |
| 50% | 1 | 7.22% |
| 60% | 1.5 | 6.72% |
| 70% | 2.33 | 6.23% |
| 80% | 4 | 5.73% |
This table holds the cost of equity and the cost of debt constant, so WACC falls forever as leverage rises. In reality both rise with leverage — equity beta levers up, lenders demand more — which is why real WACC curves are U-shaped. Treat this as a sensitivity, not a financing plan.
How this is worked out
The formula
WACC = (E ÷ V) × Re + (D ÷ V) × Rd × (1 − t) V = E + D Re = Rf + β × (equity risk premium) ← CAPM Rd = pre-tax yield on the company's debt today t = marginal tax rate Interest tax shield = D × Rd × t (per year)
Open How it’s calculated above to see this worked through with your own numbers.
What you enter
- Market value of equity
- Market capitalization, not book equity. For a private company, your best estimate of enterprise equity value.in dollars · 0 or more · defaults to 700000000
- Market value of debt
- Interest-bearing debt including capitalized leases. Book value is an acceptable proxy unless the debt trades far from par.in dollars · 0 or more · defaults to 300000000
- Risk-free rate
- The government bond yield matching your cash-flow horizon — usually the 10-year Treasury.a percentage · from -5 to 30 · defaults to 4.2
- Beta
- Sensitivity to the market. 1.0 moves with the index; utilities sit near 0.5, high-growth tech above 1.5.from -5 to 5 · defaults to 1.1
- Equity risk premium
- Expected return of equities over the risk-free rate. Damodaran's implied US premium has run 4–6% for years.a percentage · from 0 to 20 · defaults to 5
- Pre-tax cost of debt
- The yield on the company's debt today — not the coupon on debt issued years ago.a percentage · from 0 to 50 · defaults to 6
- Marginal tax rate
- 21% is the US federal corporate rate; add state tax for an all-in marginal rate, typically 24–26%.a percentage · from 0 to 60 · defaults to 21
- Size / country / specific premium(under More options)
- Bolt-on for small-cap illiquidity or country risk. Common in private-company valuations, contested in academia.a percentage · from -10 to 20 · defaults to 0
What you get back
- WACCmain answer
- In words
- Cost of equity (CAPM)
- After-tax cost of debt
- Weight of equity
- Weight of debt
- Total capital
- Equity's contribution to WACC
- Debt's contribution to WACC
- Pre-tax WACC
- The same blend before the tax shield, for comparison.
- Annual interest tax shield
- Debt × pre-tax cost of debt × tax rate — the cash the deduction saves each year.
- Debt / equity
What this assumes
- CAPM for the cost of equity: a single beta, a single equity risk premium, and one risk-free rate.
- Constant capital structure and constant tax rate over the whole forecast horizon.
- The interest tax shield is fully usable — the company has taxable income to shelter.
- Debt is measured at market value where it differs materially from book; leases are treated as debt.
- No preferred stock, hybrid securities or off-balance-sheet financing.
About this calculator
WACC is the blended return a company must earn on its assets to keep both its lenders and its shareholders whole. It is the discount rate in a DCF, the hurdle rate for a capital project, and the line above which value is created and below which it is destroyed. Get it wrong by a point and a ten-year DCF moves by a fifth.
The two halves
Cost of equity comes from CAPM: the risk-free rate plus beta times the equity risk premium. It is not a cash cost — nobody invoices you for it — but it is the return shareholders could get elsewhere at the same risk, and a company that persistently earns less than it will see its share price say so.
Cost of debt is the yield on the company's debt today, not the coupon on bonds issued in 2019. If the bonds trade at 88, the market's required return is well above the coupon. Then it is multiplied by (1 − tax rate), because interest is deductible: at a 21% rate, 6% debt costs 4.74%. That deduction is the entire reason debt looks cheap, and the annual tax shield output prices it — here, $3.78 million a year.
How to use it
Use market values for the weights, not book values. Book equity is an accounting residual that can be negative for a perfectly healthy company; market capitalization is what equity is actually worth. Book value for debt is usually fine unless the company is distressed. For beta, use a levered beta for a comparable set of public companies, or take an industry beta and re-lever it to your own capital structure — a beta pulled from one volatile stock's own history is mostly noise.
Reading the results
Equity's and debt's contributions show which side is driving the number; in almost every non-financial company, equity dominates because it is both the bigger weight and the dearer capital. The leverage table sweeps the debt weight — and is deliberately naive, holding both costs constant so WACC falls forever. It doesn't. As leverage rises, equity beta rises with it and lenders reprice, so the real curve bottoms out and turns back up. The table is a sensitivity, not a recommendation to gear up.
Where WACC misleads
It assumes a constant capital structure and a constant risk profile across every year you're discounting, which is false for a company in the middle of a leveraged buyout or a turnaround. It uses one rate for the whole business, so a conglomerate discounting a stable utility division and a venture-stage division at the same WACC will systematically overvalue the risky one and undervalue the safe one — use divisional WACCs. It bakes in a tax shield the company can only use if it has taxable income; a loss-maker carrying forward NOLs should model the shield explicitly rather than assuming it. And CAPM itself is a contested model: beta is estimated with wide error bars, the equity risk premium is unobservable, and reasonable analysts land two points apart on the same company. Run your DCF across a WACC range, not a point estimate.
Frequently asked questions
▸Should I use book or market values for the weights?
Market values. Book equity is an accounting residual — it can be negative for a healthy company after years of buybacks — while market capitalization is what shareholders' claim is actually worth. Book value for debt is a fine proxy unless the debt trades well away from par.
▸Why is debt cheaper than equity?
Two reasons: lenders are senior and take less risk, so they demand less; and interest is tax-deductible, which cuts the effective cost by the marginal tax rate. At a 21% rate, 6% debt costs the company 4.74%.
▸Does more debt always lower WACC?
No, and the table in this calculator deliberately shows the naive version that says it does. As leverage rises, equity beta rises and lenders reprice, so the real WACC curve is U-shaped. Beyond moderate leverage, distress costs swamp the tax shield.
▸What beta should I use for a private company?
Take the average levered beta of listed comparables, unlever it at their capital structures, then re-lever it at yours: βL = βU × [1 + (1 − t) × D/E]. A beta estimated from a private company's own accounting earnings is not a market beta.
▸How do I handle preferred stock?
Add it as a third weight with its own cost — the preferred dividend divided by its market price — and note that preferred dividends are not tax-deductible, so there is no shield. This calculator covers the two-component case; add the preferred leg by hand if it's material.
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