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WACC Calculator
Calculate the Weighted Average Cost of Capital for valuation and investment decisions.
Calculate WACC
What is WACC and Why Does It Matter?
WACC is the "hurdle rate" for investment decisions. If a project's return is above WACC, it creates shareholder value. Below WACC? It destroys value.
💡 Expert Insight from David Chen, CFA
"Most investors use WACC wrong. They calculate it once and apply it forever. But WACC changes with interest rates, stock prices, and capital structure. A company that was worth $100M at 8% WACC might only be worth $70M at 12% WACC. Always recalculate."
The Formula Explained
WACC = (E/V × Re) + (D/V × Rd × (1 - Tc))
- E = Market value of equity (shares × price)
- D = Market value of debt
- V = E + D (total firm value)
- Re = Cost of equity (use CAPM: Risk-free rate + Beta × Market premium)
- Rd = Cost of debt (interest rate on loans)
- Tc = Corporate tax rate (debt is tax-deductible)
Real-World Example
Tech Startup: 100% equity funded, Cost of Equity 15% → WACC = 15%
Mature Utility: 60% debt @ 4%, 40% equity
@ 9%, Tax rate 25%
WACC = (0.4 × 9%) + (0.6 × 4% × 0.75) = 3.6% + 1.8% = 5.4%
⚠️ Common Mistake: Using Book Value
Always use market values, not book values. If a company's stock is trading at $50 but the balance sheet says "equity = $20," use $50. Market value reflects what investors actually paid.
When to Use WACC
- DCF Valuation: Discount future cash flows by WACC to get present value
- Project Evaluation: Invest only if IRR > WACC
- Performance Benchmarking: Compare ROIC vs WACC (ROIC > WACC = value creation)
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❓ Frequently Asked Questions
What is WACC?
WACC is the average rate a company pays to finance its assets, weighted by the proportion of equity and debt in its capital structure.
Why is WACC important?
WACC is the discount rate for DCF valuation and the hurdle rate for investment decisions. It represents the minimum return required to satisfy investors.
How do you calculate WACC?
WACC = (E/V × Cost of Equity) + (D/V × Cost of Debt × (1 - Tax Rate)), where V = E + D.
What is a typical WACC?
It varies by industry. Tech: 8-12%, Utilities: 5-7%, Startups: 15%+.