Weighted Average Cost of Capital Calculator
This calculator computes the Weighted Average Cost of Capital (WACC), which represents a company's average cost of raising capital from equity and debt. It’s widely used in valuation, investment analysis, and corporate finance decision-making.
WACC – Capital Cost Estimator
WACC Formula
$$\text{WACC} = \left( \frac{E}{V} \times R_e \right) + \left( \frac{D}{V} \times R_d \times (1 – T) \right)$$
Where:
- $$E$$ = Market value of equity
- $$D$$ = Market value of debt
- $$V$$ = Total capital (E + D)
- $$R_e$$ = Cost of equity
- $$R_d$$ = Cost of debt
- $$T$$ = Corporate tax rate
Explanation:
WACC shows the average rate a company pays for using capital. It reflects the blended cost of both equity and debt financing, adjusted for tax benefits on interest.
WACC is a fundamental metric in:
- Discounted Cash Flow (DCF) valuations
- Evaluating investment projects
- M&A analysis and capital budgeting
Example Variables:
- Equity: $600,000
- Debt: $400,000
- Cost of equity: 8%
- Cost of debt: 5%
- Tax rate: 30%
$$\text{WACC} = \left( \frac{600{,}000}{1{,}000{,}000} \times 0.08 \right) + \left( \frac{400{,}000}{1{,}000{,}000} \times 0.05 \times (1 – 0.3) \right) = 0.048 + 0.014 = \mathbf{0.062} \ (\mathbf{6.2\%})$$
Use Cases:
- Determining hurdle rate for new investments
- Business valuation
- Portfolio return comparison