The WACC calculator blends what your equity investors demand with what your debt costs — weighted by how much of each funds the business. The result is the discount rate a DCF should use.
The formula
WACC = (E/V × Re) + (D/V × Rd × (1 − Tc)) — E and D are the market values of equity and debt, V is their sum, Re the cost of equity, Rd the cost of debt, and Tc the tax rate. Debt gets the (1 − tax) haircut because interest is tax-deductible — the government effectively subsidises borrowing.
Worked example
A company financed with $200M equity (costing 12%) and $100M debt (costing 6%, at a 21% tax rate): equity weight is 66.7%, debt weight 33.3%. WACC = 0.667 × 12% + 0.333 × 6% × 0.79 = 8.0% + 1.6% = 9.6%. That’s the hurdle every project and the whole DCF must clear.
How to read the result
A lower WACC means cheaper capital and higher valuations — which is why adding cheap debt appears to lower WACC. The honest caveat: pile on too much debt and both Rd and Re rise as risk grows, wiping out the benefit. WACC feeds directly into the DCF calculator as the discount rate.
What is a normal WACC?
Most large, stable companies land between 7% and 12%. Riskier sectors and smaller firms run higher; regulated utilities run lower.
How do I estimate cost of equity?
The CAPM is standard: risk-free rate + beta × equity risk premium. In practice that often lands between 9% and 14% for public companies.
Why is debt multiplied by (1 − tax)?
Interest payments reduce taxable income, so the true cost of debt is the rate after that tax saving.
Should I use book or market values for the weights?
Market values, ideally — book values understate equity for most healthy companies and distort the weights.