WACC calculator with formula and breakdown: calculate weighted average cost of capital, after-tax cost of debt, cost of equity via CAPM, and discount rate inputs for DCF valuation.
The WACC calculator helps you estimate a company’s weighted average cost of capital, which is the blended return required by both equity and debt investors. In practice, WACC is widely used as a discount rate in DCF models, business valuation, capital budgeting, and investment analysis. The core formula is WACC = (E/V) x rE + (D/V) x rD x (1 - t), and if preferred stock is relevant, you can also add (P/V) x rP.
Interpret the result as the company’s average financing cost. A lower WACC usually means capital is cheaper and future cash flows are discounted less aggressively, while a higher WACC means investors require a higher return for risk. This is why analysts often compare WACC with project returns, IRR, and ROIC when deciding whether an investment creates value.
Example: if a firm is financed with 40% equity at 15%, 60% debt at 8%, and a corporate tax rate of 22%, then the after-tax cost of debt is 8% x (1 - 0.22) = 6.24%. The WACC becomes 0.40 x 15% + 0.60 x 6.24% = 9.74%. This makes the weighted average cost of capital calculator useful for quickly estimating a realistic cost of capital for DCF valuation and hurdle-rate decisions.
WACC formula (weighted average cost of capital)
\begin{align}
WACC &=\frac{E}{V}\times r_{E}+\frac{D}{V}\times r_{D}\times (1-t)+\frac{P}{V}\times r_{P}\\
V &= D+E+P
\end{align}
WACC calculation breakdown:
| Equity weight (E/V) |
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| Debt weight (D/V) |
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| Preferred stock weight (P/V) |
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| After-tax cost of debt: rD x (1 - t) |
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| Equity contribution: (E/V) x rE |
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| Debt contribution: (D/V) x rD x (1 - t) |
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| Preferred stock contribution: (P/V) x rP |
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WACC Calculator FAQ
What is WACC?
WACC (Weighted Average Cost of Capital) is the average rate a company pays for its financing, weighted between equity and debt. It represents the required return investors expect and is commonly used as a discount rate in valuation.
How do I calculate WACC?
Use the formula WACC = (E/V) × rE + (D/V) × rD × (1 - t). If preferred stock is included, add (P/V) × rP. Here V = E + D (+ P), based on market values.
When should I use WACC?
Use WACC as the discount rate in DCF valuation when cash flows represent the entire firm (FCFF). It is also used for capital budgeting, investment decisions, and setting hurdle rates.
What is a good WACC?
A “good” WACC depends on the industry, risk level, and market conditions. Lower WACC generally indicates cheaper financing and higher firm value, but it should always be compared to returns on investment or project IRR.
WACC vs discount rate: what is the difference?
WACC is a specific type of discount rate based on a company’s capital structure and cost of financing. A discount rate is a broader concept and can be adjusted above or below WACC depending on project risk.
What are common WACC calculation mistakes?
Common mistakes include using book instead of market values, applying inconsistent tax rates, mixing cash flow types (FCFF vs FCFE), and ignoring preferred stock when it is significant.
