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WACC Calculator

Free WACC calculator: enter the market values and costs of debt, preferred stock and common equity, and the marginal tax rate, to get the weighted average cost of capital, with the weights and the after-tax cost of debt shown. No sign-up needed. The formula, a worked example and how to choose each input are below.

WACC Formula

W A C C = w_{d} r_{d} (1 - t) + w_{p} r_{p} + w_{e} r_{e}

where $w_{d}$ , $w_{p}$ and $w_{e}$ are the weights of debt, preferred stock and common equity in total capital, $r_{d}$ is the pretax cost of debt, $t$ is the marginal tax rate, $r_{p}$ is the cost of preferred stock and $r_{e}$ is the cost of equity. Interest is tax-deductible, so only the cost of debt gets the $(1 - t)$ adjustment.

Worked example

Take the values already in the calculator: debt of 400, no preferred stock, equity of 600, a pretax cost of debt of 7%, a cost of equity of 12% and a 25% marginal tax rate.

Total capital is $400 + 600 = 1, 000$ , so $w_{d} = 400/1, 000 = 40%$ and $w_{e} = 600/1, 000 = 60%$ .
The after-tax cost of debt is $7% \times (1 - 0.25) = 5.25%$ .
Weight each cost and add:

W A C C = 0.40 \times 5.25% + 0.60 \times 12% = 2.10% + 7.20% = 9.30%

Now add preferred stock with a value of 100 and a cost of 8%. Total capital becomes 1,100, so the weights are 36.36% debt, 9.09% preferred and 54.55% equity:

W A C C = 0.3636 \times 5.25% + 0.0909 \times 8% + 0.5455 \times 12% = 1.91% + 0.73% + 6.55% = 9.18%

The new preferred stock costs 8%, less than the 9.30% the company paid on average before, so adding it pulls the WACC down slightly.

How to choose the inputs

Weights. Use the market value of each source, or the company's target capital structure if it is moving toward one. The three weights add up to 100%; the calculator works them out from the values you enter.
Pretax cost of debt, $r_{d}$ . The yield the company would pay on new debt today, usually the yield to maturity on its existing bonds. The coupon rate reflects past conditions and is not the cost of debt.
Cost of preferred stock, $r_{p}$ . The preferred dividend divided by the preferred share price.
Cost of equity, $r_{e}$ . Not observable, so it is estimated, most often with the CAPM: the risk-free rate plus beta times the market risk premium.
Tax rate, $t$ . The marginal tax rate, the rate on the next unit of taxable income, not the average or effective rate.

What the WACC tells you

The WACC is the return the company must earn on a typical investment to satisfy all its lenders and shareholders at once. A project with the same risk as the existing business, financed in the usual mix, adds value when its net present value at the WACC is positive; for a project with a normal pattern of cash flows (spending first, inflows later), that is the same as an internal rate of return above the WACC. In a valuation, the WACC is the rate for discounting free cash flow to the firm, because those cash flows belong to debt and equity holders together.

Common mistakes

Leaving out the tax adjustment. With the default inputs, $0.40 \times 7% + 0.60 \times 12% = 10.00%$ instead of 9.30%, which overstates the WACC.
Adjusting preferred dividends for tax. They are not deductible; only interest is.
Using book values for equity. A company with a market value of equity far above its book value would get too much weight on debt and too low a WACC.
Using one company-wide WACC for a riskier project. The WACC fits projects like the existing business; a riskier project needs a higher rate.

WACC calculator: common questions

Is this WACC calculator free?

Yes. It is free to use with no sign-up, and nothing you enter is sent anywhere: the calculation runs in your browser.

What inputs do I need?

The market value of each source of capital (debt, preferred stock if any, common equity), the cost of each, and the company's marginal tax rate. Enter costs and the tax rate as percentages.

Why does only the cost of debt get the (1 − t) adjustment?

Interest is tax-deductible in most jurisdictions, so each unit of interest costs the company less after tax. Preferred dividends and returns to common shareholders are paid out of after-tax profit, so their costs are not adjusted.

What if the company has no preferred stock?

Leave its value at 0. Its weight is then zero and the formula reduces to the debt and equity terms.

Should I use market values or book values?

Market values, or the company's target weights. Market values reflect what it would cost to raise capital today; book values can be far from that, especially for equity.

What is the WACC used for?

It is the discount rate for projects with the same risk as the company's existing business and financed in its usual mix of debt and equity, and the rate for discounting free cash flow to the firm when valuing the whole company.