WACC Calculator
Enter your equity value, cost of equity, debt value, cost of debt, and corporate tax rate to get your company's weighted average cost of capital. The result includes equity and debt weights, after-tax cost of debt, and each component's contribution. Toggle in preferred stock if your capital structure includes it. Results update as you type.
Formula
Worked example
A firm has $700,000 equity (Re = 12%), $300,000 debt (Rd = 6%), and a 21% tax rate. V = $1,000,000. Equity weight = 0.70, debt weight = 0.30. After-tax cost of debt = 6% x (1 - 0.21) = 4.74%. WACC = 0.70 x 12% + 0.30 x 4.74% = 8.40% + 1.422% = 9.82%.
What is WACC?
The weighted average cost of capital (WACC) is the blended rate a company must earn on its assets to satisfy all its capital providers. It weights the cost of each source of capital, equity, debt, and preferred stock, by its share of total capital. WACC is used as the discount rate in discounted cash flow (DCF) valuations and as the hurdle rate for capital budgeting: any project with an internal rate of return above WACC creates value; any project below it destroys value. It is also used as a benchmark to assess how efficiently management deploys invested capital.
The WACC formula and how to use it
The standard formula is: WACC = (E/V) x Re + (D/V) x Rd x (1 - T) + (P/V) x Rp, where E is equity market value, D is debt market value, P is preferred stock market value, V = E + D + P is total capital, Re is the cost of equity, Rd is the pre-tax cost of debt, T is the marginal tax rate, and Rp is the cost of preferred stock. Debt receives an after-tax adjustment because interest expense is tax-deductible, reducing the effective cost. Preferred dividends are not tax-deductible, so preferred stock appears at its gross yield. To apply the result: use WACC as the discount rate when projecting future free cash flows to estimate firm value, or compare a project's expected IRR to WACC to decide whether to invest.
How to estimate your inputs
Cost of equity (Re) is most commonly estimated with the Capital Asset Pricing Model: Re = Rf + Beta x (Rm - Rf), where Rf is the risk-free rate (typically the 10-year Treasury yield), Beta measures systematic risk relative to the market, and (Rm - Rf) is the equity risk premium, historically around 4.5% to 6% for US equities. For private companies, practitioners add a size premium and company-specific risk premium. Cost of debt (Rd) is the yield-to-maturity on traded bonds, or the effective interest rate for private loans. Tax rate is the marginal corporate rate (21% federal in the US, higher with state taxes). Preferred stock cost is the annual dividend divided by current market price. Market values should be used for all capital components rather than book values, because WACC reflects the current opportunity cost to investors.
Interpreting your WACC and common mistakes
A low WACC (below 8%) typically signals a stable, investment-grade business with access to cheap debt. A high WACC (above 15%) reflects elevated risk, a growth-stage company, or heavy reliance on expensive equity. Common mistakes include using book values instead of market values, ignoring the tax shield by using pre-tax cost of debt, applying a single WACC to projects with very different risk profiles, or forgetting to include all components such as operating leases or convertible notes. WACC also changes over time as capital structures shift and market conditions change, so it should be recalculated when a firm's leverage or credit quality changes materially.
Typical WACC ranges by industry sector
| Sector | Typical WACC range | Key driver |
|---|---|---|
| Utilities | 4% - 7% | Stable regulated cash flows, high debt |
| Consumer staples | 6% - 9% | Predictable revenues, moderate leverage |
| Industrials | 7% - 11% | Cyclical earnings, moderate risk |
| Healthcare | 8% - 12% | R&D risk, regulatory exposure |
| Technology (mature) | 8% - 13% | Growth premium, lower debt |
| Retail | 8% - 12% | Thin margins, competitive intensity |
| Financial services | 8% - 14% | High leverage, market sensitivity |
| Energy (oil and gas) | 9% - 14% | Commodity price risk |
| Biotech / early-stage | 12% - 25%+ | High failure risk, limited cash flow |
| Startups / pre-revenue | 20% - 40%+ | No track record, illiquidity premium |
These are rough benchmarks for US-listed companies. Actual WACC varies significantly by firm size, leverage, and market conditions.
Frequently asked questions
What is a good WACC?
There is no universal answer, because a good WACC depends on the industry and risk profile of the firm. As a rough guide, WACCs below 8% are common for stable, investment-grade companies in utilities and consumer staples. Values between 8% and 15% are typical for industrials, healthcare, and mature technology firms. WACCs above 15% are generally associated with growth companies, biotech, or early-stage businesses where investors demand a higher return to compensate for risk. Compare your WACC to industry peers rather than to a fixed benchmark.
Why is debt cheaper than equity in the WACC formula?
Two reasons. First, debt holders have a legal claim on the company's assets before equity holders, so they face less risk and accept a lower return. Second, interest payments are tax-deductible in most jurisdictions, reducing the effective cost further. This tax shield is captured in the formula as Rd x (1 - T). Equity investors, who bear the residual risk, demand a higher return to compensate. This is why most firms use some debt: up to a point, it lowers WACC and increases firm value.
Should I use book value or market value for equity and debt?
Always use market values when calculating WACC. Book value is a historical accounting figure that can diverge significantly from market value, especially for equity. For publicly traded firms, use market capitalisation for equity and market prices for bonds. For private firms, equity value must be estimated (through a valuation or comparable transaction), and book value of debt is an acceptable proxy only when debt is near par.
How do I calculate the cost of equity?
The most common method is the Capital Asset Pricing Model: Re = Rf + Beta x ERP, where Rf is the risk-free rate (typically the current 10-year government bond yield), Beta is the stock's sensitivity to market movements, and ERP is the equity risk premium (historically 4.5% to 6% for the US market). Beta for public companies can be taken from financial data providers. For private companies, practitioners use an industry beta from comparable public firms, then adjust for the private firm's leverage (this is called the Hamada equation or the levered/unlevered beta adjustment).
Can WACC be used as a discount rate for all projects?
Only for projects with the same risk as the overall firm. For a project that is significantly riskier or less risky than the firm average, you should use a project-specific discount rate, often calculated by finding a comparable pure-play company and estimating its unlevered cost of equity. Applying the firm-level WACC to every project can lead to under-investing in low-risk projects and over-investing in high-risk ones.
What is the relationship between WACC and firm value?
In a perpetuity model, firm value equals annual free cash flow divided by WACC. A lower WACC therefore means a higher firm value for the same cash flows. This is why capital structure optimization, finding the mix of debt and equity that minimises WACC, is a core goal of corporate finance. However, excessive debt increases financial distress risk and can raise both the cost of debt and equity, so the benefit diminishes and eventually reverses at very high leverage.
How does the corporate tax rate affect WACC?
A higher tax rate makes debt cheaper in after-tax terms, because more of the interest cost is offset by the tax deduction. The after-tax cost of debt is Rd x (1 - T), so if the tax rate rises from 21% to 35%, the after-tax cost of 6% pre-tax debt falls from 4.74% to 3.90%. This reduces WACC, all else being equal. Conversely, a tax cut reduces the debt tax shield and can raise WACC slightly for debt-heavy firms.