Weighted Average Cost of Capital (WACC) Calculator
Calculate a company’s Weighted Average Cost of Capital (WACC) to determine its minimum required return. Weight equity vs debt capital and calculate cost of equity directly using CAPM.
Enter parameters on the left to calculate WACC.
Understanding WACC
The Weighted Average Cost of Capital (WACC) is a financial metric that outlines the cost of capital of a company. It blends the hurdle rates expected by stockholders (equity) and creditors (debt) based on their relative weightings. Corporate managers use WACC to evaluate internal NPV projects, while investors use it as the hurdle rate to discount future cash flows.
The WACC Formula
Where:
- E = Market value of equity.
- D = Market value of debt.
- V = Total value of capital structure (E + D).
- Re = Cost of equity (often calculated via CAPM).
- Rd = Cost of debt interest rate.
- Tc = Corporate tax rate (reduces cost of debt because interest payouts are tax-deductible).
Determining the Cost of Equity (CAPM)
The Capital Asset Pricing Model (CAPM) is the standard model used to calculate cost of equity:
Where Rf is the risk-free rate, β represents the systemic risk volatility coefficient, and ERP is the market risk premium.