WACC Calculator
Calculate a company's Weighted Average Cost of Capital from its market-value capital structure and component costs, work out Cost of Equity via CAPM (Rf + β×market risk premium), or find the after-tax Cost of Debt from a bond's yield to maturity or a direct rate — with a distinct diagram and plain-language explanation for each.
Background
WACC is the blended rate a company must earn, on average, to satisfy every source of its capital — equity investors, debtholders, and preferred shareholders — weighted by how much of the company's total value each one represents. Because interest on debt is tax-deductible and dividends are not, only the cost of debt gets discounted by (1 − Tax Rate) before it's blended in. WACC is most often used as the discount rate for evaluating an "average-risk" project's cash flows, or as the hurdle rate a return must beat to create value.
How to use this calculator
- Pick a mode: Full WACC, Cost of Equity (CAPM), or Cost of Debt.
- The input fields change to match — fill in whatever the mode asks for.
- Click Calculate to see the result, a mode-specific diagram, step-by-step math, and a plain-language read on what the number means.
- In CAPM or Cost of Debt mode, use the "Send to Full WACC" button after calculating to carry that result straight into the Full WACC inputs.
- Try a quick pick to see a worked example instantly, including one deliberately extreme case per mode.
How this calculator works
Full WACC: equity, debt, and (optionally) preferred stock are weighted by their share of total market value, then blended using each component's cost — with the cost of debt discounted by (1 − tax rate) since interest is tax-deductible.
Cost of Equity (CAPM): the risk-free rate plus beta times the market risk premium. If you have an expected market return instead of a premium, the premium is derived automatically as Rm − Rf.
Cost of Debt: either take a rate directly, or approximate the bond's yield to maturity from its face value, price, coupon, and years to maturity — then apply the same (1 − tax rate) shield.
CAPM and Cost of Debt results can be sent directly into the Full WACC inputs with one click, so you never have to re-type a number you just calculated.
Formulas & Equations Used
WACC = (E/V)·Re + (D/V)·Rd·(1 − Tc) + (P/V)·Rp, where V = E + D + P
CAPM: Re = Rf + β·(Rm − Rf), where Rm − Rf is the market risk premium
Approximate YTM = [C + (F − P)/n] ÷ [(F + P)/2], where C is the annual coupon dollar amount
After-tax Cost of Debt = Rd × (1 − Tc)
Cost of Preferred (Rp) = Preferred Dividend ÷ Preferred Price
E, D, P = market value of equity, debt, preferred stock. Re, Rd, Rp = their respective required/cost rates. Tc = corporate tax rate.
Example Problems & Step-by-Step Solutions
Example 1 — Full WACC
E = \(600,000, D = \)400,000, Re = 11%, Rd = 6%, Tc = 25%.
Steps: V = 1,000,000. We = 0.6, Wd = 0.4. After-tax Rd = 6×0.75 = 4.5%. WACC = 0.6×11 + 0.4×4.5 = 6.6 + 1.8.
Result: WACC = 8.4%.
Example 2 — Cost of Equity (CAPM)
Rf = 3.5%, β = 1.15, market risk premium = 6%.
Steps: Re = Rf + β×MRP = 3.5 + 1.15×6 = 3.5 + 6.9.
Result: Re = 10.4%.
Example 3 — Cost of Debt
Face = \(1,000, Price = \)950, Coupon = 6%, n = 10 years, Tc = 25%.
Steps: C = \)60. YTM ≈ [60 + (1000−950)/10] / [(1000+950)/2] = 65 / 975 ≈ 6.67%. After-tax = 6.67×0.75.
Result: After-tax Cost of Debt ≈ 5.0%.
Frequently Asked Questions
Why does WACC use market values, not book values?
Market values reflect what investors would actually have to pay today to buy that claim on the company — the real opportunity cost of capital. Book values are historical accounting figures and can be far from what the capital is actually worth today.
Why does the cost of debt get an after-tax discount but not the cost of equity?
Interest paid to debtholders is tax-deductible for the company, so every dollar of interest effectively costs less than a dollar — the "tax shield." Dividends paid to equity holders are not tax-deductible, so no such adjustment applies to Re.
Should a company just keep adding debt to lower its WACC?
No — this formula treats Re and Rd as fixed numbers, but in reality both rise as leverage increases. More debt means a higher chance of financial distress, so lenders demand a higher Rd and shareholders demand a higher Re to compensate for the added risk to their claim. Beyond some point, that rising risk premium outweighs the tax shield, which is why real companies target an "optimal" capital structure rather than maximizing debt.
Why does CAPM use beta instead of overall volatility?
Diversified investors can eliminate company-specific (unsystematic) risk by holding a broad portfolio, so the market doesn't compensate them for it. Beta measures only the systematic risk that can't be diversified away — the risk investors actually get paid to bear.
Is the YTM formula here exact?
No — it's the standard straight-line approximation used in most intro finance courses. The exact YTM requires solving for the discount rate that sets the bond's discounted cash flows equal to its price, which normally takes trial-and-error or a financial calculator. The approximation is typically within a few tenths of a percentage point.
How is the cost of preferred stock usually found?
Preferred stock is normally valued as a perpetuity — a fixed dividend paid forever — so its cost is simply the annual preferred dividend divided by the preferred stock's current price, not a CAPM-style calculation.
What is WACC actually used for?
Most commonly, as the discount rate in a discounted cash flow or NPV analysis for a project or the company as a whole — but only when that project's risk is similar to the company's existing average risk. A much riskier or safer project should use a different discount rate.
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