acalculator

What is my WACC?

Enter what your equity, debt and any preferred stock are worth today and what each one costs. The calculator weights each cost by its share of the total, takes the tax saving on interest off the cost of debt, and gives your WACC.

Your numbers

WACC
11.35%

With 75.6% equity, 24.4% debt and 0% preferred stock, the WACC is 11.35%.

After-tax cost of debt
4.986%
Total capital
$1,000,000,000.00
Equity weight
75.6%
Debt weight
24.4%
Preferred weight
0%

WACC: 11.35%. With 75.6% equity, 24.4% debt and 0% preferred stock, the WACC is 11.35%.

The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use

How to calculate

Computes the weighted average cost of capital (WACC) from the market values and costs of equity, debt and preferred stock, with debt counted after tax.

Example with the default inputs (Market value of equity $756,000,000.00, Cost of equity 13.4%, Market value of debt $244,000,000.00, Cost of debt (before tax) 6.312%, Tax rate 21%, Market value of preferred stock $0.00, Cost of preferred stock 0%): With 75.6% equity, 24.4% debt and 0% preferred stock, the WACC is 11.35%.

Method: WACC = E ÷ V × re + D ÷ V × rd × (1 − T) + P ÷ V × rp, where V = E + D + P are market values, re, rd and rp the costs of equity, debt and preferred stock, and T the tax rate.

  • Weights use the market values you type, not book values.
  • Interest on debt is tax-deductible at the tax rate you type; preferred dividends and equity returns are not.
  • Arithmetic is exact on the typed decimals; results round once for display.

Machine-readable copies: Markdown, JSON.

Worked examples

Each example is checked against the calculator on every build.

  1. Market value of equity $756.00, Cost of equity 13.4%, Market value of debt $244.00, Cost of debt (before tax) 6.312%, Tax rate 21% gives WACC 11.347101%, After-tax cost of debt 4.98648%.Source: OpenStax, Principles of Finance, 17.3 Calculating the Weighted Average Cost of Capital (WACC = D% × rd(1 − T) + P% × rpfd + E% × re). https://openstax.org/books/principles-finance/pages/17-3-calculating-the-weighted-average-cost-of-capital
  2. Market value of equity $600,000.00, Cost of equity 10%, Market value of debt $400,000.00, Cost of debt (before tax) 5%, Tax rate 25% gives WACC 7.5%, After-tax cost of debt 3.75%, Equity weight 60%, Debt weight 40%.Source: OpenStax, Principles of Finance, 17.3 Calculating the Weighted Average Cost of Capital (WACC = D% × rd(1 − T) + P% × rpfd + E% × re). https://openstax.org/books/principles-finance/pages/17-3-calculating-the-weighted-average-cost-of-capital
  3. Market value of equity $500.00, Cost of equity 12%, Market value of debt $300.00, Cost of debt (before tax) 6%, Tax rate 21%, Market value of preferred stock $200.00, Cost of preferred stock 8% gives WACC 9.022%, Preferred weight 20%.Source: OpenStax, Principles of Finance, 17.3 Calculating the Weighted Average Cost of Capital (WACC = D% × rd(1 − T) + P% × rpfd + E% × re). https://openstax.org/books/principles-finance/pages/17-3-calculating-the-weighted-average-cost-of-capital

How it works

With the market values E (equity), D (debt) and P (preferred stock), and V = E + D + P:

  • After-tax cost of debt = rd × (1 − T)
  • WACC = E ÷ V × re + D ÷ V × rd × (1 − T) + P ÷ V × rp

Here re is the cost of equity, rd the cost of debt before tax (its yield to maturity), rp the cost of preferred stock and T the tax rate. All rates are percents a year.

The page also shows each weight (E ÷ V, D ÷ V and P ÷ V, as percents) and the total capital V.

Rules:

  • Each market value is $0 or more, and at least one must be more than $0. Preferred stock is optional and counts as $0 when left empty; its cost then counts as 0%.
  • Each cost is from 0% to 1,000%. The tax rate is from 0% to 100%.
  • The arithmetic is exact on the decimals you type. Percents show to 2 decimals (the after-tax cost of debt to 3), rounded half up.

Assumptions

  • The weights are market values, and the company keeps this mix of capital.
  • Only interest on debt is tax-deductible. Preferred dividends and returns to shareholders are paid from after-tax income.

Worked examples by hand

Bluebonnet Industries (OpenStax). Debt is 24.4% and equity 75.6% of capital. The bonds yield 6.312% and the tax rate is 21%, so the after-tax cost of debt is 6.312% × 0.79 = 4.98648%. The cost of equity is 13.4%. WACC = 0.244 × 4.98648% + 0.756 × 13.4% = 1.21670% + 10.1304% = 11.3471%, shown as 11.35%. OpenStax rounds the parts first and shows 11.33%.

60% equity, 40% debt. E = $600,000 at 10%, D = $400,000 at 5% before a 25% tax. After tax, debt costs 5% × 0.75 = 3.75%. WACC = 0.6 × 10% + 0.4 × 3.75% = 6% + 1.5% = 7.5%.

With preferred stock. E = 500 at 12%, D = 300 at 6% with a 21% tax, P = 200 at 8%. V = 1,000. Debt after tax costs 6% × 0.79 = 4.74%. WACC = 0.5 × 12% + 0.3 × 4.74% + 0.2 × 8% = 6% + 1.422% + 1.6% = 9.022%.

Other questions people ask

What is WACC?

WACC, the weighted average cost of capital, is the average return a company must pay the people who fund it: shareholders, lenders and preferred shareholders. Each cost counts in proportion to how much of the company’s capital it supplies.

How do I calculate WACC?

Add up the market values of equity, debt and preferred stock to get the total V. Multiply each cost by its share of V, using the cost of debt after tax, and add the results. With 60% equity at 10% and 40% debt at 5% before a 25% tax, WACC = 0.6 × 10% + 0.4 × 5% × 0.75 = 7.5%.

Why is the cost of debt taken after tax?

Interest is a deductible expense, so each dollar of interest lowers the company’s tax bill by the tax rate. A 6.312% yield at a 21% tax rate costs the company 6.312% × (1 − 0.21) = 4.986% after tax.

Should I use market values or book values?

Market values are the usual choice, because they show what investors would pay for the company’s equity and debt today. Book values from the balance sheet can be far from that, mainly for equity.

How do I estimate the cost of equity?

Two common ways are the capital asset pricing model (CAPM): risk-free rate + beta × market risk premium, and the constant dividend growth model: next year’s dividend ÷ share price + growth rate. Type the result in the cost of equity box.

What is WACC used for?

WACC is the usual discount rate for a project with the same risk as the company as a whole. A project whose return is above the WACC adds value; one below it does not. You can use it as the rate in an NPV or as the hurdle for an IRR.