How to use this calculator
Enter five inputs.
- Market value of equity: what the owners' stake is worth today. For a listed company this is share price multiplied by the number of shares.
- Market value of debt: what the company's interest-bearing borrowing is worth. The amount shown on the balance sheet is a common stand-in.
- Cost of equity %: the yearly return shareholders expect for the risk they take.
- Cost of debt %: the average interest rate the company pays on its borrowing.
- Tax rate %: the rate of tax the company pays on its profit.
The calculator returns the WACC, the equity weight, the debt weight, the after-tax cost of debt and total capital.
Worked example
These are the starting values in the calculator above and the results they give. Change any input to see your own numbers.
- Market value of equity
- $600,000
- Market value of debt
- $400,000
- Cost of equity
- 10%
- Cost of debt
- 5%
- Tax rate
- 25%
- WACC
- 7.5%
- Equity weight
- 60%
- Debt weight
- 40%
- After-tax cost of debt
- 3.75%
- Total capital
- $1,000,000
How WACC is calculated
Total capital is equity plus debt. The equity weight is equity divided by total capital, and the debt weight is debt divided by total capital. The two weights add up to 100%.
Interest is normally paid out of profit before tax, so borrowing lowers the tax bill. The after-tax cost of debt reflects that saving: it is the cost of debt multiplied by one minus the tax rate. With a 6% cost of debt and a 25% tax rate, the after-tax cost is 6% × 0.75, or 4.5%.
WACC is the equity weight multiplied by the cost of equity, plus the debt weight multiplied by the after-tax cost of debt. Each source of money counts in proportion to how much of it the company uses.
WACC = (E ÷ V) × Re + (D ÷ V) × Rd × (1 − T)- E
- market value of equity
- D
- market value of debt
- V
- total capital, E + D
- Re
- cost of equity
- Rd
- cost of debt
- T
- tax rate, as a decimal
How to read the results
WACC is the minimum return a company needs to earn on its investments to keep its funders whole. It is most often used in two ways.
- As a hurdle rate. A project expected to earn more than WACC should add value. One that earns less should not.
- As a discount rate. WACC is the usual rate for discounting future cash flows in the NPV calculator.
A lower WACC means cheaper funding and makes more projects worthwhile. Stable, established businesses tend to have a lower WACC than young or risky ones, and the figure differs widely between industries.
Debt usually costs less than equity, so adding some debt tends to lower WACC. That only works up to a point. Heavy borrowing raises the risk of default, and both lenders and shareholders then demand higher returns.
The cost of equity is the hardest input to pin down, because it is an estimate and not a rate anyone quotes. Small changes to it move the result noticeably, so test a range. Use market values, not book values, where you can. For projects that are riskier than the company's normal business, many analysts add a margin on top of WACC. The guide what is WACC covers each input in more depth.
Frequently asked questions
What is WACC?
WACC stands for weighted average cost of capital. It is the average yearly rate a company pays for its funding, with the cost of equity and the after-tax cost of debt weighted by how much of each the company uses. It represents the minimum return the business must earn on its assets to satisfy the people who finance it.
What is a good WACC?
Lower is generally better, because it means the company can raise money cheaply. There is no single good figure. Large, stable companies often sit in the mid to high single digits, while small or risky ventures can be well into double digits. These are loose rules of thumb. Compare a company with others in the same industry.
How do I find the cost of equity?
The cost of equity is estimated, not observed. The most common method is the capital asset pricing model, which starts with a risk-free rate and adds a premium for the extra risk of the stock compared with the market as a whole. Private companies often use the returns that investors expect from similar listed businesses, adjusted for size and risk.
Why is the cost of debt adjusted for tax?
In most tax systems, interest is deducted from profit before tax is worked out. Each dollar of interest therefore reduces the tax bill, which makes the real cost of borrowing lower than the stated interest rate. Multiplying the cost of debt by one minus the tax rate captures that saving. Dividends paid to shareholders do not usually get the same treatment.
Should I use market value or book value for WACC?
Market values are preferred because they reflect what investors would pay for the company's equity and debt today, and so what return they require on that amount. Book values come from historic accounting entries and can be far from current worth, especially for equity. For debt, book value is often close enough to market value to be used when market data is not available.
This calculator gives estimates for education only. It does not know your full situation and is not financial advice. Reviewed and updated November 15, 2026.