WACC Calculator — Weighted Average Cost of Capital

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How this is calculated

The weighted average cost of capital (WACC) is the rate a firm must earn on its existing assets to satisfy its creditors and shareholders. It blends the cost of each capital component — equity and debt — weighted by each component's share of the total capital structure. The formula is WACC = (E/V × Re) + (D/V × Rd × (1 − Tc)), where E is the market value of equity, D is the market value of debt, V = E + D is total capital, Re is the cost of equity, Rd is the pre-tax cost of debt, and Tc is the marginal corporate tax rate.

Debt is cheaper than equity for two reasons: lenders accept lower returns because they have priority claims in bankruptcy, and interest payments are tax-deductible (the "interest tax shield"), so the effective after-tax cost of debt is Rd × (1 − Tc). Equity is more expensive because shareholders bear residual risk and require a higher expected return — typically estimated using the Capital Asset Pricing Model (CAPM): Re = Rf + β × (Rm − Rf), where Rf is the risk-free rate, β is the stock's systematic risk, and Rm is the expected market return.

WACC is the most common discount rate in discounted cash flow (DCF) valuation. A project or acquisition is value-creating if its expected internal rate of return (IRR) exceeds WACC. Several caveats apply: WACC assumes a constant capital structure; the market values of debt and equity should be used (not book values); and the tax rate should be the marginal effective rate, not the statutory rate. This calculator uses 2025 US corporate tax rates as defaults, which are editable for other jurisdictions.