Weighted Average Cost of Capital (WACC) Calculator

What is WACC?

The weighted average cost of capital (WACC) is the average return a company must pay its investors. A business is financed by shareholders, who expect a return for taking risk, and by lenders, who charge interest. WACC blends the two according to how much of each the company uses. Because interest is tax-deductible, debt is counted after tax. The result is the minimum annual return the business must earn to satisfy everyone who funds it, and it is the discount rate used in a DCF.

When do you use it?

Mainly as the discount rate in DCF valuations, including both DCF calculators (simplified and full), and as a hurdle rate when companies decide whether a project is worth doing. In M&A, a buyer compares the return on a target with its WACC. Private equity funds think more in target IRRs, but they still need a WACC to check a DCF of the business they are buying.

How to read the output

The calculator first estimates the cost of equity with the CAPM: the risk-free rate plus beta times the equity risk premium. Beta measures how much a company's shares move with the market. You enter an unlevered beta (business risk only), and the calculator re-levers it for the debt level you choose, since debt makes shares riskier. With the example inputs, the re-levered beta is 1.10, the cost of equity 9.06%, the after-tax cost of debt 3.75%, the weights 77% equity and 23% debt, and the WACC 7.84%. For established companies in developed markets, 6–11% is a common range; below 5% or above 15% deserves a second look.

The sensitivity table moves the unlevered beta by 0.1 either way (rows) against debt/equity by 0.1 either way (columns). Beta has a much bigger effect: in the example WACC runs from 7.30% to 8.40%, mostly down the rows. More debt lowers WACC only slightly here, because cheaper debt is partly offset by a higher cost of equity. A small change in WACC still matters: in the Northfield DCF, one point of WACC moves value per share by about 20%.

Common mistakes

• Entering debt/equity as a percentage. It is a ratio: 0.3, not 30.
• Using a levered beta as the input. The calculator expects an unlevered beta; entering a levered one counts the debt twice.
• Mixing currencies. The risk-free rate should come from a government bond in the same currency as the cash flows.
• Using book values for weights. Weights should reflect market or target values, not historical balance sheet figures.
• A WACC at or below terminal growth. Plugging such a rate into a DCF makes the terminal value meaningless.

Limitations

CAPM is a model, not a law: real investors may also demand premiums for small size, country risk or illiquidity, which this calculator leaves out. It assumes debt has no market risk, one target capital structure and one tax rate that never change. Inputs such as the equity risk premium are estimates on which experts disagree.

FAQ

Where do I find beta?

From comparable listed companies, usually unlevered and averaged. Data providers publish industry betas.

Why is debt cheaper than equity?

Lenders are paid first and interest is tax-deductible, so they accept a lower return.

So should a company borrow as much as possible?

No. Beyond a point, the risk of financial distress raises both costs. The model does not capture that.

Does WACC change over time?

Yes, with interest rates, risk and the capital structure. This calculator gives one rate for all years.

Educational use only. Not financial advice. Exact formulas: see the Methodology page