WACC Calculator

Calculate the weighted average cost of capital (WACC) of a company or project using the CAPM model. Use point as decimal separator.

Input Data

%
Annual risk-free rate of return.
%
Expected annual market return.
Operating risk without debt.
Market value of equity.
Market value of interest-bearing debt.
%
Effective corporate tax rate.
%
Average annual borrowing cost.
%
Additional premium for country risk.
Market value of preferred stock (0 if none).
%
Required return on preferred stock.

Calculation Results

WACC
Cost of Equity (Ke)
After-Tax Cost of Debt (Kd)
Levered Beta (βe)
Total Capital (V)
Debt / Equity Ratio (D/E)
Market Risk Premium (Rm − Rf)
Conclusion: With a capital structure of equity and debt, the company requires a minimum annual return of to cover its financing costs and avoid value destruction.

Breakdown by Financing Source

Total (100%):

WACC Composition

For an accurate estimate, use market values and comparable annual rates. WACC assumes the capital structure remains relatively stable.

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What is WACC (Weighted Average Cost of Capital)?

WACC stands for Weighted Average Cost of Capital. It represents the minimum rate of return a company must earn to compensate its equity holders and debt providers.

It is commonly used as a discount rate to convert future cash flows into present value when valuing companies, assets, or investment projects.

How is WACC Calculated?

The calculation combines the cost of equity, the after-tax cost of debt, and optionally the cost of preferred stock. Each cost is weighted according to its share in the total financing structure.

General WACC Formula and Components

WACC = (E/V × Ke) + (D/V × Kd × (1 − T)) + (P/V × Kp)

Where:

  • E = Market value of equity.
  • D = Market value of interest-bearing debt.
  • P = Market value of preferred stock.
  • V = Total capital (E + D + P).
  • Ke = Cost of equity.
  • Kd = Pre-tax cost of debt.
  • Kp = Cost of preferred stock.
  • T = Corporate tax rate.

Cost of Equity Using the CAPM Model

The calculator estimates the cost of equity using the Capital Asset Pricing Model (CAPM). It first adjusts the unlevered beta according to the debt level and then calculates the required return for equity investors.

Unlevered Beta Adjustment (Hamada Model)

βe = βu × (1 + (D × (1 − T) / E))

Calculating Ke Using the Security Market Line (SML)

Ke = Rf + βe × (Rm − Rf) + country risk premium
  • Rf = Risk-free rate.
  • Rm = Expected market return.
  • βu = Unlevered beta (operating business risk without debt).
  • βe = Levered beta, incorporating financial leverage risk.

How to Interpret WACC Results?

  • Low WACC: Indicates a lower average financing cost, making it easier for projects to generate economic value.
  • High WACC: Reflects higher financing cost or risk, reducing the present value of future cash flows.
  • If an investment project's expected return exceeds its WACC, it can generate economic value, provided risks and assumptions are comparable.

WACC should not automatically be applied to all projects. An investment with a different risk profile than the overall firm may require an adjusted discount rate.

Limitations of the WACC Rate

The result depends on estimates such as beta, expected market return, cost of debt, and country risk premium. Additionally, the model assumes that the capital structure remains relatively constant over the analyzed period.

When evaluating an investment, it is best to complement WACC with other metrics such as NPV and IRR and perform sensitivity analysis on key assumptions.

Practical WACC Calculation Example

Assume a company with equity of 600000, debt of 400000, an unlevered beta of 1.2, a risk-free rate of 4%, an expected market return of 10%, a tax rate of 25%, and a cost of debt of 6%.

βe = βu × (1 + (D × (1 − T) / E))

Ke = Rf + βe × (Rm − Rf) + country risk premium

WACC = (E/V × Ke) + (D/V × Kd × (1 − T)) + (P/V × Kp)

With these inputs, the levered beta is approximately 1.80, the cost of equity is approximately 14.80%, and the resulting WACC is approximately 10.68%.