Free WACC Calculator
Calculate the weighted average cost of capital from the value and cost of equity and debt and the tax rate. The discount rate a DCF or EPV is built on.
Funded 80% by equity and 20% by debt. Use this as the discount rate in a DCF, and stress-test it up by one or two points.
What WACC is
The weighted average cost of capital is the blended return a business's investors require, debt holders and shareholders together, weighted by how much of each funds the company. It is the single most influential input in a valuation, because it is the rate that converts future cash into today's dollars. Raise it and every future dollar is worth less now, so the intrinsic value falls even when nothing about the business has changed.
How the calculation works
- Weight the cost of equity by the share of the business funded by equity, and the cost of debt by the share funded by debt.
- Tax-adjust the debt side by multiplying by one minus the tax rate, because interest is deductible and so debt is cheaper than its headline rate.
- Add the two weighted figures. The result is the discount rate to use in a DCF or an earnings power value.
Choosing the inputs
For the cost of equity, many long-term investors start from the current 10-year Treasury yield as the risk-free rate and add an equity risk premium, landing somewhere in the range of 8 to 12 percent. The cost of debt is the rate the company actually pays on its borrowings. Use the current risk-free rate rather than a multi-year average, since the discount rate should reflect the world as it is now.
Use it, then stress-test it
A valuation is highly sensitive to this one number, so do not treat it as precise. Once you have a WACC, run the intrinsic value again at WACC plus one and plus two points. If the case only holds at the lowest plausible rate, that is a finding, not a footnote. Long-duration businesses, where most of the value sits in distant cash flows, move the most when the rate changes.
Related calculators
- DCF calculator — drop your WACC in as the discount rate and estimate intrinsic value.
- Earnings power value calculator — use WACC as the required return to value a business with no growth assumed.
Frequently asked questions
- What is WACC?
- WACC, the weighted average cost of capital, is the blended annual return that a company's debt and equity holders together require. It weights the cost of equity and the after-tax cost of debt by how much of each funds the business. It is the standard discount rate used to convert a company's future cash flows into a present value.
- How is WACC calculated?
- WACC equals the proportion of equity times the cost of equity, plus the proportion of debt times the cost of debt times one minus the tax rate. The debt side is tax-adjusted because interest payments are deductible, which makes debt cheaper than its headline rate. This calculator does the weighting and the tax adjustment for you.
- What is the cost of equity?
- The cost of equity is the return shareholders require to hold the stock given its risk. It is often estimated as the risk-free rate (the 10-year Treasury yield) plus an equity risk premium, sometimes scaled by the company's volatility relative to the market. Many long-term investors simply use a required return in the range of 8 to 12 percent.
- Why does WACC matter for valuation?
- WACC is the discount rate in a discounted cash flow. A higher WACC marks future cash down harder and lowers the intrinsic value, even when nothing about the business has changed. Because small changes move the output a lot, it is worth running a valuation at WACC plus one and two points to see how sensitive the result is.
This calculator is for education and research only. It is not investment advice and it does not recommend buying or selling any security. The output depends entirely on the assumptions you enter.