WACC Calculator

Formula

How to use this calculator

1. Enter the market value of equity (stock price × shares outstanding for public companies; estimated valuation for private companies).
2. Enter the market value of debt (bonds, term loans, notes — at market value, not book value if they differ).
3. Enter the cost of equity. Use the Capital Asset Pricing Model (Rf + β × equity risk premium) or industry benchmarks. Typical range: 8-15% for U.S. public companies.
4. Enter the cost of debt (pre-tax). Use the yield on the company's bonds or the rate it would pay on new debt at similar credit quality.
5. Enter the corporate tax rate. U.S. federal: 21%. Add state corporate tax (averages ~5%) for combined rate of ~26%.
6. Review the calculated WACC. Use it as: (1) discount rate in DCF analysis, (2) hurdle rate for new project evaluation, (3) baseline for comparing returns on different investments.
7. For private companies, WACC is harder to calculate precisely (no market value of equity, often opaque debt market). Use industry averages for similar public companies as a starting point.
8. For sensitivity analysis, recalculate at different capital structures (more debt, less debt) to see how WACC changes. Optimal capital structure typically minimizes WACC, though too much debt eventually raises both cost of equity and cost of debt due to financial distress risk.

Worked examples

When to use this calculator

Common mistakes to avoid

• Using book values instead of market values. Market value of equity (stock price × shares) and market value of debt are correct. Book values can be significantly different.
• Forgetting the tax shield on debt. Pre-tax cost of debt overstates the true cost — interest is deductible, so effective cost is Rd × (1 − tax rate).
• Using personal opportunity cost as cost of equity. WACC is the company's cost of capital, calibrated to what shareholders require. Personal alternatives differ.
• Assuming optimal capital structure is "lots of debt." High leverage reduces WACC mathematically but increases financial distress risk, which raises both cost of equity and cost of debt eventually. Optimal is typically moderate.
• Using WACC as discount rate for project with different risk than the company's average. A risky new venture from a low-risk utility should use a higher discount rate than the utility's WACC.
• Forgetting that WACC changes. Re-estimate periodically, especially after major capital structure shifts (large debt issuance, share buybacks, equity raises) or rate environment changes.

Sources & further reading

• Cost of Capital — Investor Education — U.S. Securities and Exchange Commission
• Corporate Finance Fundamentals — Financial Industry Regulatory Authority
• Federal Reserve Economic Data (FRED) — interest rates — Federal Reserve Bank of St. Louis