WACC Calculator

Calculate the Weighted Average Cost of Capital β€” the minimum return a company must earn to satisfy all capital providers.

WEIGHTED AVERAGE COST OF CAPITAL

9.75%

EQUITY WEIGHT

70%

DEBT WEIGHT

30%

WACC = (70% Γ— 12%) + (30% Γ— 6% Γ— (1 βˆ’ 25%))

πŸ’‘ WACC: The Foundation of Discounted Cash Flow Valuation

WACC (Weighted Average Cost of Capital) represents the blended cost of financing a company's operations through both debt and equity. It is the discount rate used in Discounted Cash Flow (DCF) models β€” the most rigorous method for intrinsic valuation of businesses and projects.

The formula is: WACC = (E/V Γ— Re) + (D/V Γ— Rd Γ— (1βˆ’T)), where E = equity value, D = debt value, V = total value (E+D), Re = cost of equity, Rd = cost of debt, and T = corporate tax rate. The tax shield on debt (1βˆ’T factor) reflects that interest payments are tax-deductible, making debt inherently cheaper than equity on an after-tax basis.

70% equity at 12% cost + 30% debt at 6% cost Γ— (1 βˆ’ 25% tax) = WACC of 9.75%. Any project returning above 9.75% creates value for shareholders; anything below destroys it.

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