Work out a company's weighted average cost of capital — the blended return that shareholders and lenders together demand. Enter the market value of equity and debt, the cost of each, and the tax rate.
Answer first: the weighted average cost of capital is the return a business must earn on its assets to satisfy every provider of money — both its shareholders and its lenders. This WACC calculator takes the market value of equity and debt, weights the cost of each by its share of total financing, and lowers the cost of debt for the tax shield that interest payments enjoy.
WACC = (E ÷ V × Re) + (D ÷ V × Rd × (1 − Tc))
where V = E + D. Example: equity $600M, debt $400M, so V = $1,000M. With a 9% cost of equity, a 5% cost of debt and a 21% tax rate: (0.60 × 9) + (0.40 × 5 × 0.79) = 5.40 + 1.58 = 6.98%.
WACC is the single most important discount rate in company valuation. When you run a discounted cash flow model, WACC is usually the rate you use to bring future free cash flows back to today's dollars. A lower WACC makes those future dollars worth more now, which is why cheap financing quietly inflates valuations across the whole market. It is also the hurdle rate for capital projects: a factory, an acquisition or a share buyback only creates value if its expected return beats the company's WACC.
Textbooks and this calculator use market values of equity and debt, not the numbers printed on the balance sheet. The market value of equity is simply the market capitalisation — share price times shares outstanding — because that is what shareholders could sell for today. Book equity reflects historical accounting and can be wildly different. For debt, book value is usually a fair proxy unless the bonds trade far from par, so many analysts use the balance-sheet figure as a shortcut.
Interest is tax-deductible, so every dollar of interest reduces the tax bill. That is why the debt term is multiplied by (1 − tax rate): a 5% coupon really costs a profitable company only about 3.95% after a 21% tax rate. This tax shield is the mathematical reason debt looks "cheaper" than equity and why heavily taxed, stable businesses often carry more of it. Push leverage too far, though, and the rising risk of financial distress lifts both the cost of debt and the cost of equity — there is an optimal capital structure, not a free lunch.
The cost of equity is not observable like a loan rate; it is the return shareholders expect for bearing risk. Most analysts estimate it with the capital asset pricing model (CAPM): risk-free rate plus beta times the equity risk premium. A higher beta means a more volatile stock and therefore a higher cost of equity, which flows straight through to a higher WACC. Because that estimate involves judgement, treat WACC as a reasoned range — say 6.5%–7.5% — rather than a single decimal-perfect number.
Reality check: WACC depends on estimates that change with interest rates and sentiment, so small input changes move it noticeably. This is an educational tool, not investment advice. For the fundamentals of company financing and disclosure, see the U.S. SEC at investor.gov.
Use WACC as the discount rate in the DCF calculator, estimate the equity piece with the CAPM calculator, compare returns against it with the ROIC calculator, and check leverage with the debt-to-equity calculator.
Last updated July 4, 2026 · Written by Mustafa Bilgic. Educational only — not financial advice.
There is no universal 'good' WACC — it depends on the industry, interest rates and risk. Large, stable companies often sit near 6%–9%, while small or volatile firms can exceed 12%. What matters is that a company earns a return on invested capital above its own WACC; that is when it creates value.
Interest payments are tax-deductible, so borrowing reduces a profitable company's tax bill. The (1 − tax rate) factor captures this tax shield, turning a 5% coupon into an after-tax cost of about 3.95% at a 21% tax rate.
Use market value — the current market capitalisation — because it reflects what shareholders could actually realise today. Book equity is based on historical accounting and can differ dramatically from market value.
WACC is the discount rate in discounted cash flow valuations and the hurdle rate for investment decisions. A project or acquisition only adds value if its expected return exceeds the company's WACC.