WACC Calculator - Weighted Average Cost of Capital
Calculate the blended discount rate a company pays across equity and debt, the rate most often used in a DCF valuation.
Not financial advice. This calculator is for research and educational purposes only. Outputs are estimates based on the inputs you provide and are not buy or sell recommendations. Always do your own research and consult a licensed professional before making investment decisions.
What is WACC and how do you calculate it?
WACC (weighted average cost of capital) is the blended return a company must earn across its equity and debt, and it's the discount rate most investors use in a DCF. You calculate it by weighting the cost of equity and the after-tax cost of debt by each source's share of total capital.
- Formula: WACC = (E/V × cost of equity) + (D/V × cost of debt × (1 − tax rate)).
- Inputs: equity market value, total debt, cost of equity, pre-tax cost of debt, and tax rate.
- A higher WACC lowers the present value of future cash flows in a DCF.
- Use market values for the weights where possible, and re-check WACC when rates or leverage change.
- Weight of equity80%
- Weight of debt20%
- After-tax cost of debt3.95%
- WACC7.99%
- Result interpretationCapital mix is 80% equity / 20% debt; a higher WACC generally lowers valuation.
Stress-test the result
Change one assumption at a time. The bars show direction, not a forecast.
What it is
The weighted average cost of capital (WACC) is the blended required return a company must earn across all of its financing sources. It weights the cost of equity and the after-tax cost of debt by each source's share of the capital structure. WACC is the discount rate most investors use in a discounted cash flow valuation.
Interactive demo: how the analysis flows
Illustrative numbers only — not real data or advice.
Who it is for
- Investors who need a discount rate before running a DCF.
- Anyone comparing a company’s returns against its true cost of capital.
- Students and analysts learning how capital structure affects valuation.
Inputs and outputs
Inputs
- Equity market value
- Market capitalization of the company’s equity, in millions.
- Total debt
- Market or book value of interest-bearing debt, in millions.
- Cost of equity
- Required return for shareholders, often from the CAPM model.
- Pre-tax cost of debt
- The interest rate the company pays on its debt before tax.
- Tax rate
- The effective corporate tax rate, used to tax-adjust debt.
Outputs
- Weight of equity
- Equity value as a share of total capital.
- Weight of debt
- Debt value as a share of total capital.
- After-tax cost of debt
- Cost of debt adjusted for the tax shield.
- WACC
- The weighted average cost of capital.
Example workflow
- Enter equity market value of $800M and total debt of $200M.
- Set cost of equity to 9% and pre-tax cost of debt to 5%.
- Use a 21% tax rate.
- The calculator weights equity at 80% and debt at 20%.
- Read the resulting WACC and use it as the discount rate in a DCF.
WACC reflects current financing conditions. Re-check it when interest rates, leverage, or risk assumptions change.
Common mistakes
- Mixing book values for debt with market values for equity inconsistently.
- Forgetting to apply the tax shield to the cost of debt.
- Using an outdated cost of equity that ignores current rates.
- Treating WACC as fixed even after the capital structure changes.
- Applying one company’s WACC to a business with a very different risk profile.
You already use a hurdle rate — on your mortgage
Anyone deciding whether to repay a 5% mortgage early or invest the cash is already doing what a WACC calculation does: comparing a use of money against its next-best alternative. Repaying the loan "earns" a guaranteed 5%; any investment must clear that bar — adjusted for the fact that its return is not guaranteed — before it deserves the money instead.
Buffett and Munger run Berkshire the same way and famously compute no formal WACC. Their discount rate is opportunity cost: every project competes against simply buying more of the best business they already know at the current price. The arithmetic of WACC is a way of writing down that same question — what must this money beat? — not a magic constant to be copied from a textbook.
A discount rate is just your next-best alternative with the risk priced in. If you would not accept the assumption on your own mortgage, do not accept it in a model.
When the price already assumed a miracle
In 1972, institutions convinced themselves that about fifty "one-decision" growth stocks could be bought at any price and never sold. Polaroid traded above 90 times earnings, McDonald's and Disney near 80, Avon around 65. Run the arithmetic backwards and those prices quietly assumed decades of flawless, ever-accelerating growth.
The 1973–74 bear market repriced the dream: the group fell 60–90%, and Polaroid eventually went bankrupt. The cruel detail is that many of the businesses kept growing exactly as promised — the investments still failed, because the starting price had already spent the future.
Run the DCF backwards: ask what growth today's price assumes, then ask honestly whether reality can deliver it.
Related tools
Frequently asked questions
What is WACC?
WACC is the weighted average cost of capital, the blended return a company must earn across equity and debt to satisfy all of its investors. It is commonly used as the discount rate in valuation.
How do I find cost of equity?
Cost of equity is often estimated with the CAPM model: the risk-free rate plus beta times the equity risk premium. It represents the return shareholders require for holding the stock.
Should I use market or book values?
Market values are generally preferred for the weights because they reflect what investors would pay today. Book values can be used for debt when market values are not available, but try to stay consistent.
Why subtract tax from cost of debt?
Interest expense is usually tax-deductible, so the effective cost of debt is lower than the stated rate. Multiplying the pre-tax cost of debt by (1 − tax rate) captures this tax shield.
How is WACC used in a DCF?
In a discounted cash flow valuation, future free cash flows are discounted back to the present using WACC as the discount rate. A higher WACC lowers the present value of those cash flows.
Use WACC inside a full valuation workflow.
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