WACC calculator
Work out a company's weighted average cost of capital: the blended return it has to earn for its shareholders and lenders. Enter its equity and debt, what each costs and its tax rate.
- Cost of equity
- 10.00%
- After-tax cost of debt
- 3.75%
- Equity contribution
- 6.00%
- Debt contribution
- 1.50%
Use the WACC as the discount rate for free cash flow to the firm in a DCF valuation.
Pull market cap, total debt, effective tax rate and beta for any listed company, so your WACC updates with the market.
=SF("AAPL","quote","marketCap")=SF("AAPL","balancesheet","totalDebt","LY")=SF("AAPL","ratios","effectiveTaxRate","LY")How WACC is calculated
A company is funded by shareholders and lenders, and each expects a return. WACC weights those two costs by how much of the company's capital each one provides, using market values rather than book values.
- E is the market value of equity, or market capitalisation.
- D is the value of debt. Book value is a common stand-in when bonds don't trade.
- Re is the cost of equity, usually estimated with the CAPM.
- Rd is the pre-tax cost of debt. It's multiplied by (1 − tax rate) because interest is deductible.
Worked example
A company worth $600M in equity with $400M of debt has 60% equity and 40% debt funding. With a 10% cost of equity, 5% cost of debt and a 25% tax rate, the WACC is 0.6 × 10% + 0.4 × 5% × 0.75 = 7.5%.
What WACC is used for
WACC is the hurdle rate for the whole business. Projects that return more than it create value, and it's the discount rate for unlevered free cash flow in a DCF. Small changes matter: a one-point change in WACC can move a DCF valuation by 15–25%.
Frequently asked questions
What is a good WACC?
Lower is cheaper funding, but WACC mostly reflects risk. Large, stable companies often have a WACC of 6–9%, while smaller or riskier ones can be well above 10%. What matters is whether the company earns more than its WACC on the capital it invests.
Should I use market or book values for the weights?
Use market values where you can, because they reflect what investors would pay today. Market cap is easy to find for equity. For debt, book value is a common shortcut when the company's bonds don't trade often.
Why is the cost of debt adjusted for tax?
Interest payments reduce taxable profit, so part of the cost of borrowing is effectively paid by the tax saving. Multiplying by (1 − tax rate) gives the after-tax cost the company really bears.
Can I include preferred stock or leases?
Yes. Add preferred stock as a third source of capital with its own cost, and many analysts count lease liabilities as debt. This calculator covers the common two-part case of equity and debt.
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