WACC calculator
Move the five inputs and watch the weighted average cost of capital move with them. Below are the formula, a worked example with round numbers, and the three things people almost always get wrong when computing it.
The starting values are an example and are deliberately invented, with round figures so the arithmetic can be redone by hand. They are not data from any real company.
What happens if you are wrong
WACC for each combination of cost of equity and weight of debt. The highlighted cell is yours.
Rows: cost of equity. Columns: weight of debt over the total.
This calculator runs entirely in your browser. No data is sent to any server, no sign-up is needed and nothing is stored.
The formula
WACC = (E ÷ (D+E)) × Ke + (D ÷ (D+E)) × Kd × (1 − t)
The formula, and why debt enters after tax
WACC is what the money a company uses costs it, weighting each source by its share. Equity weighs E ÷ (D+E) and costs Ke; debt weighs D ÷ (D+E) and costs Kd, but multiplied by (1 − t).
That (1 − t) is the part most often forgotten. Interest is a deductible expense, so the state pays part of it: debt at 5 % with a 25 % tax rate actually costs 3.75 %. That is why a leveraged company has, on paper, a lower WACC than an unleveraged one — until default risk pushes up both Ke and Kd at once, and the advantage reverses.
A worked example
A company with €700M of equity and €300M of debt, a 10 % cost of equity, debt at 5 % and a 25 % tax rate. The weights are 70 % and 30 %. The after-tax cost of debt is 5 % × 0.75 = 3.75 %. WACC comes to 0.70 × 10 % + 0.30 × 3.75 % = 7.0 % + 1.125 % = 8.125 %.
That is the whole calculation, and it can be redone by hand in a minute. The arithmetic is not the hard part: where Ke and Kd come from is.
Where the cost of equity comes from
Almost always from CAPM: Ke = risk-free rate + beta × market risk premium. With a 10-year bond at 3.2 %, a beta of 1.1 and a premium of 5.5 %, that gives 3.2 % + 1.1 × 5.5 % = 9.25 %. None of the three inputs is a published figure: the risk-free rate depends on which bond you pick, beta on which window and index you use, and the premium is simply an estimate.
That is why the grid above moves Ke and the weight of debt and not the others: those are the two inputs that are genuinely estimated. The cost of debt and the tax rate are read off the accounts.
Frequently asked questions
How is WACC calculated?
WACC = (E ÷ (D+E)) × Ke + (D ÷ (D+E)) × Kd × (1 − t), where E is the market value of equity, D is financial debt, Ke the cost of equity, Kd the cost of debt and t the tax rate. With €700M of equity, €300M of debt, Ke of 10 %, Kd of 5 % and a 25 % tax rate, the result is 8.125 %. Debt enters after tax because interest is a deductible expense.
What is a normal WACC?
There is no normal figure, because it depends on the risk-free rate at the time, on the sector and on the country. What does make sense is comparing it with the company's own return on invested capital: if ROIC beats WACC, growing creates value; if it is below, growing destroys it. That comparison informs far more than the absolute level of WACC.
Why is the cost of debt multiplied by (1 − t)?
Because interest reduces taxable income, so part of the cost is borne by the state through lower tax. Nominal debt at 5 % with a 25 % rate effectively costs 3.75 %. Without that adjustment WACC would come out higher than it really is, and any discounted cash flow valuation would give too low a value.
Can you use another company's WACC from the same sector?
As a reference yes; as a figure, no. WACC depends on the specific capital structure, on the rate at which that company borrows and on its effective tax rate, and all three vary a lot between similar companies. A copied WACC is an assumption dressed up as data, and in a discounted cash flow half a point of difference moves the value per share by between 9 % and 16 %.
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Do it on a real company
Celsmar computes this from the accounts companies file with their regulator, and shows which line every figure comes from. Free to start, no card.
A calculation tool for informational purposes. It is not financial advice nor a recommendation to buy or sell, and its result depends entirely on the assumptions you enter.