WACC Calculator
Calculate weighted average cost of capital from the capital structure, cost of equity via CAPM, cost of debt and tax rate, with the levered beta and a sensitivity view.
Last reviewed by the Radiatus Cloud team
Planning cloud or compliance spend?
Our team optimises cloud cost & risk for finance leaders.
The hurdle rate every project has to clear
A company funded by both equity and debt has a blended cost of capital: the return it must earn to satisfy both groups of providers. Equity holders demand more than lenders because they are paid last and bear the residual risk. Debt is cheaper, and cheaper still after tax because interest is deductible in most jurisdictions. The weighted average of the two, in proportion to how much of each is in the capital structure, is the rate that project cash flows should be discounted at.
Cost of equity is estimated, not observed
Nobody sends an invoice for the cost of equity. The standard estimate is the capital asset pricing model: the risk free rate plus beta times the equity risk premium. Each input is contested. The risk free rate is usually a ten year government bond yield. The equity risk premium is commonly taken between four and six percent, depending on which study you cite. Beta is measured from historical price movement and is noisy for small companies. The output is a reasonable estimate with an honest uncertainty of a couple of percentage points, which is worth remembering before treating the result as precise.
The tax shield and its limits
Interest deductibility makes debt cheaper after tax, which is why more leverage lowers the weighted average cost of capital up to a point. Beyond that point the rising probability of financial distress raises both the cost of debt and the cost of equity faster than the tax shield saves, and the curve turns back up. That is the trade off theory of capital structure, and it is why the optimum is a range rather than as much debt as possible.
Related tools
- Compound Interest Calculator — Project how savings or investments grow with compound interest and regular contributions, in both nominal and inflation-adjusted terms.
- Mortgage Calculator — Calculate mortgage payments from price, deposit, rate and term, with total interest, amortisation and the costs beyond principal and interest.
- EMI Calculator — Calculate equated monthly instalments for a loan, with total interest, amortisation breakdown and the effect of prepayment.
- Paycheck / Salary Calculator — Work out net pay per paycheck after tax and deductions, including the extra-paycheck months.
Frequently Asked Questions
Should I use book or market values?
Market values. The weights represent what investors have at stake today, not what was historically recorded. Book equity in particular can differ from market capitalisation by an order of magnitude.
What equity risk premium should I use?
Between four and six percent is the range most commonly used, with published estimates from Damodaran and from historical studies falling in that band. State which you used, because a two point difference moves the result materially.
Where do I get beta?
From a financial data provider for a listed company, or by taking the average unlevered beta of comparable listed companies and relevering it to your own capital structure. The calculator does the relevering when you supply an unlevered beta.
Why does the after tax cost of debt matter?
Because interest is deductible in most tax systems, so a 6 percent coupon at a 25 percent tax rate costs the company 4.5 percent. This is what makes debt structurally cheaper than equity beyond the risk difference alone.
Does more debt always reduce WACC?
Only up to a point. Beyond a moderate level of leverage, the cost of debt rises with default risk and the cost of equity rises faster still, so the curve turns back up. The optimum is a range, not a maximum.
Privacy & Security
Everything runs in your browser; nothing is uploaded.
How to Use
Enter your equity and debt values, cost of each, and tax rate to get the blended cost of capital.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
Related Tools
Compound Interest Calculator
FinanceProject how savings or investments grow with compound interest and regular contributions, in both nominal and inflation-adjusted terms.
Mortgage Calculator
FinanceCalculate mortgage payments from price, deposit, rate and term, with total interest, amortisation and the costs beyond principal and interest.
EMI Calculator
FinanceCalculate equated monthly instalments for a loan, with total interest, amortisation breakdown and the effect of prepayment.