CapCost

WACC Calculator

Find the blended rate your company pays to finance its assets — equity and debt combined.

Equity value

Debt value

Cost of equity (%)

Cost of debt (%)

Tax rate (%)

Weighted average cost of capital

9.86%

Total capital: $700,000

What you entered

Equity value: $500,000Debt value: $200,000Cost of equity: 12%Cost of debt: 6%Tax rate: 25%

1
Total capital (V = E + D)
$500,000.00 + $200,000.00= $700,000.00
2
Equity weight (E/V)
$500,000.00 ÷ $700,000.00= 71.43%
3
Debt weight (D/V)
$200,000.00 ÷ $700,000.00= 28.57%
4
Equity component (E/V × Re)
71.43% × 12%= 8.57%
5
After-tax debt component (D/V × Rd × (1 − Tc))
28.57% × 6% × (1 − 25%)= 1.29%
6
WACC
8.57% + 1.29%= 9.86%

Result

WACC: 9.86%

With $500,000 in equity and $200,000 in debt, the blended after-tax cost of capital is 9.86%. Any project must earn above this rate to create value.

WACC by capital structure, at 10% cost of equity and 6% cost of debt

Each row changes the mix of equity and debt while holding the cost of each constant, with a 25% tax rate making debt interest deductible.

Equity / debt mix	WACC
100% equity, 0% debt	10.00%
80% / 20%	8.90%
70% / 30%	8.35%
60% / 40%	7.80%
50% / 50%	7.25%
40% / 60%	6.70%
30% / 70%	6.15%

WACC falls steadily as debt replaces equity, for two reasons: debt is cheaper than equity to begin with, and interest is tax-deductible, so the effective cost of 6% debt at a 25% tax rate is 4.5%. Read literally the table implies you should borrow as much as possible, which is where the model's limits show. It holds the cost of equity and debt fixed, whereas in reality both rise as leverage increases and lenders and shareholders price in the higher risk of distress - so real WACC curves are U-shaped and there is an optimum somewhere in the middle. Use WACC as the discount rate in an NPV or DCF valuation; if the discount rate you use is below your true WACC, every project looks better than it is.

What WACC tells you

WACC is the minimum return a company must earn on its existing assets to satisfy its creditors, owners, and other capital providers. It blends the cost of equity (what shareholders expect) and the after-tax cost of debt (interest expense adjusted for the tax shield). A lower WACC means cheaper capital and higher valuations.

The WACC formula

WACC = (E/V) × Re + (D/V) × Rd × (1 − Tc), where E = equity value, D = debt value, V = E + D, Re = cost of equity, Rd = cost of debt, Tc = corporate tax rate. Debt gets a tax benefit because interest is deductible, which is why the (1 − Tc) term appears on the debt side.

Why WACC matters for valuation

WACC is the discount rate in DCF models. A lower WACC means future cash flows are worth more today, increasing the company's valuation. A 1% change in WACC can shift a company's intrinsic value by 10–20%. This is why capital structure decisions (how much debt vs equity) directly affect shareholder value.

Frequently asked questions

How do you calculate WACC?

WACC = (E/V) × Re + (D/V) × Rd × (1−T). Example: $60M equity at 12% cost, $40M debt at 6% interest, 25% tax rate. V = $100M. WACC = (60/100)×12% + (40/100)×6%×(1−0.25) = 7.2% + 1.8% = 9.0%. The company must earn at least 9% on its assets to satisfy all capital providers.

What is a typical WACC?

It varies by industry and risk. Large-cap US companies: 7–10%. Utilities (low risk, high debt): 5–7%. Tech companies (high equity cost): 9–14%. Startups: 15–25%+. Emerging markets: add 2–5% country risk premium. The S&P 500 average WACC has historically been around 8–10%.

Why does debt lower WACC?

Interest payments on debt are tax-deductible, creating a 'tax shield.' If a company pays 6% on debt with a 25% tax rate, the after-tax cost is only 4.5%. Since debt costs less than equity after tax, adding debt (up to a point) lowers WACC. Too much debt increases bankruptcy risk, which raises both equity and debt costs.