WACC Calculator
The weighted average cost of capital (WACC) is the blended return a company must earn to keep all of its investors satisfied, both the lenders who hold its debt and the shareholders who hold its equity. This calculator works it out from five inputs: the market value of equity, the market value of debt, the cost of each, and the company's tax rate. Each source of funding is weighted by its share of total capital, then combined into a single percentage. The cost of debt is reduced by the tax rate first, because interest is usually tax-deductible, which makes borrowing cheaper than its headline rate suggests. Equity gets no such adjustment. WACC matters because it is the discount rate in a discounted cash flow valuation and the hurdle rate against which new projects are judged: a project that earns more than WACC adds value, and one that earns less destroys it. Enter your own capital structure to estimate a discount rate, compare financing mixes, or sense-check a valuation. Every figure here is computed deterministically from the standard formula shown below, never estimated, and the worked example reconciles exactly to the calculator's default inputs so you can trace each step yourself.
WACC blends the cost of equity and the after-tax cost of debt by their weights: WACC = (E/V) Re + (D/V) Rd (1 - tax). With 60% equity at 10% and 40% debt at 6% (21% tax), the WACC is 7.90%.
WACC formula
WACC = (E / V) x Re + (D / V) x Rd x (1 - Tc)
V = E + D
E = market value of equity, D = market value of debt
Re = cost of equity, Rd = cost of debt (both as decimals)
Tc = corporate tax rate (as a decimal)
Total capital V is the sum of equity and debt. The equity weight E / V and the debt weight D / V show how much of the funding each provides. The cost of debt is multiplied by one minus the tax rate to reflect the tax deduction on interest, then both costs are blended by their weights into a single rate.
Worked example
A company is funded by 600,000 of equity and 400,000 of debt. Its cost of equity is 10%, its cost of debt is 6%, and its tax rate is 21%.
- Total capital: V = 600,000 + 400,000 = 1,000,000
- Equity weight: 600,000 / 1,000,000 = 0.60, or 60.00%
- Debt weight: 400,000 / 1,000,000 = 0.40, or 40.00%
- Equity contribution: 0.60 x 10% = 6.000%
- Debt contribution: 0.40 x 6% x (1 - 0.21) = 0.40 x 6% x 0.79 = 1.896%
- WACC = 6.000% + 1.896% = 7.896%, which rounds to 7.90%
The WACC is 7.90%. These are the calculator's default inputs, so the result above matches the widget exactly.
How the debt mix changes WACC
WACC for a company with cost of equity 10%, cost of debt 6%, and a 21% tax rate, at different debt weights.
| Debt weight | Equity weight | WACC |
|---|---|---|
| 0% | 100% | 10.00% |
| 20% | 80% | 8.95% |
| 40% | 60% | 7.90% |
| 60% | 40% | 6.84% |
| 80% | 20% | 5.79% |
Cost of capital and investing concepts: US Securities and Exchange Commission, Investor.gov.
WACC calculator: frequently asked questions
What is WACC?
The weighted average cost of capital (WACC) is the blended rate of return a company must earn on its assets to satisfy all of its investors, both lenders and shareholders. It weights the cost of equity and the after-tax cost of debt by how much of each the company uses. WACC is widely used as the discount rate in a discounted cash flow valuation and as a hurdle rate for new projects.
How is WACC calculated?
WACC equals the equity weight times the cost of equity, plus the debt weight times the after-tax cost of debt. The equity weight is the market value of equity divided by total capital, and the debt weight is the market value of debt divided by total capital. The cost of debt is multiplied by one minus the tax rate, because interest is tax-deductible, which lowers the real cost of borrowing.
Why is the cost of debt adjusted for tax?
Interest payments are generally tax-deductible, so borrowing reduces a company's tax bill. The tax saving makes debt cheaper than its stated interest rate suggests. Multiplying the cost of debt by one minus the tax rate captures that benefit, giving the after-tax cost of debt. Equity has no equivalent deduction, so the cost of equity is not adjusted.
Should I use book values or market values?
WACC theory calls for market values of equity and debt, because they reflect what investors could buy or sell the claims for today, which is what determines the required returns. Book values from the balance sheet can be used as a rough proxy when market figures are unavailable, but they often understate the value of equity and can distort the weights.
What does a higher or lower WACC mean?
A lower WACC means cheaper overall funding, which raises the present value of future cash flows and makes more projects worth pursuing. A higher WACC reflects greater risk or costlier capital, sets a tougher hurdle, and lowers valuations. Because WACC is the discount rate in many models, small changes in it can move a valuation substantially.
Official sources
- Cost of capital, risk and return, and investing basics: US Securities and Exchange Commission, Investor.gov. As at 24 June 2026.
Reviewed by the CalculatorHub team, edited by James Graham, 24 June 2026. See our methodology. This is general information, not financial, tax, legal or investment advice.