Calculate weighted average cost of capital with cost of equity (CAPM), cost of debt, and optimal capital structure analysis.
This calculator estimates WACC by deriving the cost of equity with CAPM, adjusting the cost of debt for the selected tax rate, and weighting both costs by their shares of total capital. It can also compare alternative debt and equity mixes to identify the lowest calculated WACC. A frequent mistake is entering accounting book values for debt and equity when the analysis calls for current market values. That can materially change both weights and the result.
A concrete input and expected output from the current implementation.
Input
Equity market value: $600,000 Debt market value: $400,000 Risk-free rate: 4% Expected market return: 9% Beta: 1.2 Pre-tax cost of debt: 6% Tax rate: 25%
Expected output
Cost of equity: 10.00% After-tax cost of debt: 4.50% Capital weights: 60.00% equity, 40.00% debt WACC: 7.80%
CAPM gives 4% + 1.2 x (9% - 4%) = 10%. WACC is then 60% x 10% + 40% x 6% x (1 - 25%) = 7.80%.
The equity rate is calculated as risk-free rate + beta x market risk premium, where the market risk premium is the expected market return minus the risk-free rate. Equity and debt weights are each divided by their combined value. The resulting WACC is equity weight x equity cost + debt weight x debt cost x (1 - tax rate).
For each candidate debt and equity mix, the weighted formula produces a corresponding cost of capital. The mix with the lowest calculated WACC is the mathematical optimum among the cases examined. It is not automatically the firm's practical optimum because borrowing rates, equity risk, credit capacity, and tax benefits can change as leverage changes.
No. A company WACC is most defensible for cash flows with operating and financing risk similar to the existing business. A project in a different country, industry, currency, or risk class may require a project-specific discount rate. The rate must also match whether the projected cash flows are nominal or real.
Follow the field label. Expected market return is the market's full expected return, while market risk premium is that return minus the risk-free rate. If a field requests the premium, enter only the spread. Entering the full market return there would count the risk-free component twice and overstate equity cost.
The example and behavioral notes were checked against the browser implementation. Standards and primary references below define the relevant format, formula, or platform behavior.
Calculate gross, operating, and net profit margins from cost and revenue with breakeven analysis.
Convert between annual salary and hourly rate with adjustments for work hours, overtime, and benefits.
Calculate sales tax amounts, tax-inclusive and tax-exclusive prices for any tax rate or jurisdiction.
Calculate return on investment from initial cost and final value with annualized ROI and comparison tables.
Convert between markup and margin percentages, calculate selling price, and compare pricing strategies.
Convert numeric amounts to written words for invoices, checks, and legal documents in multiple currencies.