WACC Calculator
Calculate average cost of capital for valuation.
Capital Structure
Cost Rates
WACC Result
0%
Total Value (V): $1,500,000
Understanding WACC
The Weighted Average Cost of Capital (WACC) represents a firm's average cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt.
The Formula
WACC = (E/V × Re) + [(D/V × Rd) × (1 - T)]
Where:
E = Market value of equity
D = Market value of debt
V = Total value of capital (E + D)
Re = Cost of equity
Rd = Cost of debt
T = Corporate tax rate
How it works
WACC acts as the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital. It is often used as the discount rate for Net Present Value (NPV) calculations in financial modeling.
FAQ
What is WACC?
WACC stands for Weighted Average Cost of Capital. It represents the average rate a company expects to pay to finance its assets, weighting the cost of equity and cost of debt.
Why is the tax rate included in WACC?
Interest payments on debt are typically tax-deductible, creating a 'tax shield'. This reduces the effective cost of debt. The WACC formula accounts for this with the (1 - Tax Rate) term.
What is a good WACC?
A lower WACC is generally better, as it indicates a cheaper cost of funding. However, 'good' depends on the industry. Tech companies may have higher WACCs than utility companies due to higher risk.
Related Calculators
Explore more calculators to solve your calculation needs
