Weighted Average Cost of Capital (WACC) Calculator
Calculate your company's weighted average cost of capital based on equity and debt components.
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Table of Contents
WACC Formula
The Weighted Average Cost of Capital (WACC) is the average rate of return a company is expected to pay to all its security holders to finance its assets. It represents the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital.
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
- Tc = Corporate tax rate
How to Calculate WACC
To calculate WACC, follow these steps:
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1Calculate the market value of equity (E) and debt (D)
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2Determine the cost of equity (Re) and cost of debt (Rd)
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3Calculate the corporate tax rate (Tc)
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4Apply the WACC formula
WACC - Practical Examples
Example 1 Small Business
Market Value of Equity: $500,000
Cost of Equity: 12%
Market Value of Debt: $200,000
Cost of Debt: 6%
Tax Rate: 21%
WACC ≈ 9.8%
Example 2 Medium-sized Company
Market Value of Equity: $2,000,000
Cost of Equity: 10%
Market Value of Debt: $1,000,000
Cost of Debt: 5%
Tax Rate: 21%
WACC ≈ 8.2%
Example 3 Large Corporation
Market Value of Equity: $10,000,000
Cost of Equity: 8%
Market Value of Debt: $5,000,000
Cost of Debt: 4%
Tax Rate: 21%
WACC ≈ 6.5%