Capital structure
Equity supplies 58.33% of the current funding mix.
Market-value weights are used because they better reflect the current economic claims of lenders and shareholders.
WACC Calculator (Weighted Average Cost of Capital)
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Weighted Average Cost of Capital Calculator
Estimate the blended after-tax cost of equity and debt, see each funding source’s contribution, and export the current analysis to Excel.
WACC 11.42%
Equity weight 58.33%
Debt weight 41.67%
Total capital $1,200,000.00
Capital assumptions
Use market values when they are available. All results update as you type.
%
Required return expected by common shareholders.
$
Current market value of common equity.
%
Current borrowing yield or effective interest rate.
$
Interest-bearing debt included in the capital structure.
%
Marginal rate used to estimate the interest tax shield.
Live results
Weighted average cost of capital
11.42%
A project financed at this mix should generally clear an 11.42% return before it begins creating value.
Equity weight
58.33%
8.75 pp contribution
Debt weight
41.67%
2.67 pp contribution
After-tax debt cost
6.40%
1.60 pp tax shield
Total capital
$1,200,000.00
Equity plus interest-bearing debt
Current calculation
58.33% × 15.00% + 41.67% × 8.00% × (1 − 20.00%) = 11.42%
Capital mix and WACC contribution
The capital structure determines the weights; the required returns determine how much each source adds to WACC.
WACC sensitivity to debt weight
At unchanged component costs, the current 41.67% debt weight produces an 11.42% WACC.
This is a mechanical sensitivity, not an optimal-capital-structure model. In practice, heavier leverage can change both debt and equity costs.
Calculation details
Every table value comes from the same live model used for the headline result and charts.
| Component | Market value | Capital weight | Input cost | After-tax cost | WACC contribution |
|---|
The debt contribution applies the corporate tax rate only to the debt cost. Equity is not reduced by the interest tax shield.
Sensitivity table
Selected points from the chart show how the weighted rate changes when only the debt weight moves.
| Debt weight | Equity weight | Equity contribution | Debt contribution | Modeled WACC |
|---|
Component costs and the tax rate are held constant across rows. Real financing costs may rise or fall as leverage changes.
How to use and interpret this WACC calculator
Weighted average cost of capital, or WACC, estimates the blended annual return required by the providers of a company’s long-term capital. It combines the required return on equity with the after-tax cost of debt, weighted by the market value of each source. Analysts commonly use WACC as a hurdle rate for projects with risk similar to the existing business and as a discount rate for unlevered free cash flow in a discounted cash flow model.
The output is an analytical benchmark, not personalized investment advice. A company-specific WACC depends on judgment about market values, comparable-company risk, borrowing costs, tax capacity, and the risk of the cash flows being valued.
What each input means
Cost of equity is the annual return common shareholders require for bearing business and financial risk. It is entered as a percentage. Analysts often estimate it with the capital asset pricing model, using a risk-free rate, an equity beta, and an equity risk premium. A higher cost of equity increases WACC in proportion to the equity weight. Common mistakes include using the historical accounting return on equity or a dividend yield as a full substitute for investors’ required return.
Equity market value is the current value of the company’s common equity. For a listed company, this is usually diluted shares outstanding multiplied by share price, with adjustments where appropriate. For a private company, an estimated fair value may be necessary. Market value is preferred to book equity because WACC aims to weight current economic claims, not historical accounting balances. Enter a nonnegative U.S. dollar amount.
Pre-tax cost of debt is the current yield the company would pay on comparable borrowing, not necessarily the average coupon on old debt. A practical estimate may come from traded bond yields, a credit spread over a benchmark rate, or current lender quotes. Increasing this rate raises after-tax debt cost and WACC. The Federal Reserve Economic Data database can help users review market interest-rate benchmarks.
Debt market value includes interest-bearing debt used in the capital structure. Public bonds can be valued at market prices; private loans are often approximated by book value when their rates are close to current market rates. Avoid including operating liabilities such as ordinary trade payables unless your valuation framework explicitly treats them as financing.
Corporate tax rate estimates the marginal rate applicable to deductible interest. It reduces the debt component because interest expense may create a tax shield. Use a rate that reflects the company’s expected taxable position and jurisdiction rather than automatically using a recent effective tax rate. The IRS corporate information portal is an authoritative starting point for U.S. federal corporate tax topics. A company with persistent tax losses may not realize the full shield immediately.
How the formula works
The calculator first adds equity and debt to obtain total capital. Equity weight equals equity divided by total capital; debt weight equals debt divided by total capital. After-tax debt cost equals the pre-tax debt cost multiplied by one minus the corporate tax rate. WACC is then the equity weight multiplied by the cost of equity, plus the debt weight multiplied by the after-tax cost of debt.
WACC = E / (E + D) × Cost of equity + D / (E + D) × Cost of debt × (1 − Tax rate)
The primary result is shown as an annual percentage. The equity and debt contribution cards express how many percentage points each source adds to WACC. Those two contributions sum exactly to the headline WACC. The after-tax debt cost card shows the debt rate after the modeled tax shield; the tax-shield line shows the percentage-point reduction from the pre-tax rate.
How to read the charts and tables
The capital-structure donut shows the market-value shares of equity and debt. It does not show which source is “better”; it simply visualizes the weighting used in the calculation. The WACC-contribution detail table separates market value, weight, input cost, after-tax cost, and contribution so you can cross-foot the result.
The sensitivity line changes debt weight from 0% to 100% while holding the cost of equity, pre-tax debt cost, and tax rate constant. The highlighted point marks the current capital mix. If after-tax debt cost is below the cost of equity, the line slopes downward. That mechanical result should not be interpreted as proof that maximum debt minimizes the company’s true cost of capital: additional leverage can increase default risk, borrowing spreads, and the required return on equity.
The sensitivity table provides exact values at selected debt weights and includes the current mix. Use it to understand arithmetic exposure, then supplement it with scenario-specific component costs when evaluating a real financing plan.
Practical interpretation and common mistakes
A project expected to earn more than WACC may create value if its cash flows, risk, and measurement basis are comparable to the company used to estimate the rate. A return below WACC may fail to compensate capital providers. In valuation, WACC is generally paired with unlevered free cash flow; equity cash flow requires a cost-of-equity discount rate instead. The SEC EDGAR database provides filings that can support market-value debt, share-count, interest-expense, and tax research for U.S. public companies.
- Do not mix book-value equity with market-value debt when reliable market values are available.
- Do not use a project WACC that is lower than the company rate merely to make a project pass; riskier projects generally require a higher hurdle rate.
- Do not apply the tax shield when the company is unlikely to use interest deductions within the relevant period.
- Do not assume component costs remain constant across major leverage changes.
- Do not round intermediate weights or contributions; round only the displayed result.
For broader conceptual background, the Investopedia WACC overview explains common uses and limitations. For rigorous work, document the source date and rationale for every assumption, compare against industry and transaction evidence, and refresh the rate when markets or the capital structure change materially.