Advanced Finance
WACC Calculator
The discount rate everything else in corporate finance hangs off. Cost of equity from CAPM, cost of debt after the tax shield, weighted by what each is actually worth in the market — not what the balance sheet says they cost.
Inputs
- Market value of equity
- Market value of debt
- Risk-free rate
- Equity risk premium
- Beta
- Pre-tax cost of debt
- Tax rate
How to use this calculator
- Enter the market value of equity (share price × shares, not book equity) and the market value of debt. For most private companies the face value of debt is a reasonable stand-in; book equity is not.
- Set the risk-free rate from a government bond of similar duration to the cash flows you are discounting, then set the equity risk premium. Most practitioners use something between 4% and 7%.
- Enter beta. Above 1 means the equity moves more than the market, and levered companies have higher betas because debt amplifies equity returns.
- Enter the pre-tax cost of debt (the rate you would actually borrow at today, not the historic coupon) and the marginal tax rate.
- Read the WACC and then check the weights. If you change the capital structure, the cost of equity should change too, and this tool will not do that for you.
What each term means
- WACC
- The blended return all your capital providers require, weighted by how much of the business each of them funds. The hurdle rate for investing.
- CAPM
- Capital Asset Pricing Model: cost of equity = risk-free rate + beta × equity risk premium. Widely criticised, still the standard.
- Beta
- How much a stock moves relative to the market. A beta of 1.25 means it historically moved 25% more than the index, up and down.
- Equity risk premium
- The extra return investors demand for holding equities over government bonds. An estimate, not an observable number.
- Tax shield
- Interest is deductible, so debt costs less after tax. Worth nothing to a company with no taxable profit.
Educational disclaimer: Outputs are simplified educational estimates built from the numbers you enter — they are not financial, legal, tax, or investment advice, and real decisions deserve verified figures and qualified professionals.