Free WACC Calculator: Calculate Weighted Average Cost of Capital
Find the correct discount rate for your valuation models. Our free WACC calculator helps you estimate a company's Weighted Average Cost of Capital in seconds. Learn how to use the WACC formula
WACC in a Nutshell
WACC stands for Weighted Average Cost of Capital. Don’t let the name scare you. It’s basically the average cost a company pays to finance its business — from both borrowing money (debt) and raising money from shareholders (equity).
Think of it as the minimum return a company must earn to keep its investors and lenders happy. If a business earns less than its WACC, it’s losing value. But if it earns more, it’s creating value.
What Does the Calculator Do?
It looks at the company's capital structure under the hood:
- Cost of Debt: Interest expenses and total debt.
- Tax Rate: Adjusts for tax-deductible interest.
- Cost of Equity: Uses CAPM (Risk-Free Rate, Beta, Market Return).
- Capital Structure: The balance between Debt vs. Equity (Market Cap).
Why Is This Useful?
Understanding a company’s WACC allows you to:
- Value a business properly: Use WACC as the discount rate in our DCF Valuation Calculator.
- Compare opportunities: Lower WACC means cheaper capital.
- Spot financial health: A high WACC might indicate high risk or inefficiency.
Ready to Verify Your Valuation?
Once you have the WACC, plug it into the Discounted Cash Flow model to see the stock's intrinsic value.
The WACC Formula Explained
The weighted average cost of capital formula might look complex, but it's just a weighted average. It calculates the cost of each part of the company's capital (Debt and Equity) and weighs them by how much of the total capital they represent.
The Components
- E: Market Value of Equity (Market Cap).
- D: Market Value of Debt (Total Debt).
- V: Total Value (E + D).
- Re: Cost of Equity (Required return by shareholders).
- Rd: Cost of Debt (Interest rate on loans).
- T: Corporate Tax Rate.
The Tax Shield
Notice the (1 − T) part? That's the tax shield. Because interest payments on debt are tax-deductible, the effective cost of debt is lower than the nominal interest rate. This is why companies often carry some debt—it's cheaper than equity.
Try It Yourself
Our WACC estimation tool is simple to use and doesn’t lock you behind a paywall. Just sign up for free if you received value and could use more access to financial data and tools. Whether you’re analyzing a stock or trying to understand how a business is financed, this tool is built to help — no jargon, no headache. Give it a try and take one more step toward smarter investing!
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Frequently Asked Questions
- WACC (Weighted Average Cost of Capital) is the average interest rate a company pays to finance its business. It includes payments to lenders (interest on debt) and expectations of shareholders (cost of equity), weighted by how much of each funding source the company uses.
- The WACC formula is: WACC = (E/V × Re) + ((D/V × Rd) × (1 − T)). Where E is equity, D is debt, V is total value (E+D), Re is cost of equity, Rd is cost of debt, and T is the corporate tax rate.
- A lower WACC is generally better because it means the company can fund its operations cheaply. Most stable, large-cap companies have a WACC between 7% and 10%. A very high WACC suggests high risk, while a very low WACC (like 4-5%) is typical for safer, stable utilities.
- Cost of Equity is typically calculated using the CAPM (Capital Asset Pricing Model): Cost of Equity = Risk-Free Rate + Beta × (Market Return - Risk-Free Rate).
- Investors use WACC as the 'discount rate' in Discounted Cash Flow (DCF) analysis. It helps determine if a stock is overvalued or undervalued by discounting future cash flows back to today's value.