Corporate Cost Of Capital Calculator

WACC Formula:

\[ WACC = (E/V × Re) + (D/V × Rd × (1 - Tc)) \]

E (USD):

USD

V (USD):

USD

Re (%):

D (USD):

USD

Rd (%):

Tc (%):

WACC (%):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is WACC?

WACC (Weighted Average Cost of Capital) represents a company's average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. It's used as a hurdle rate for investment decisions.

2. How Does the Calculator Work?

The calculator uses the WACC formula:

\[ WACC = (E/V × Re) + (D/V × Rd × (1 - Tc)) \]

Where:

\( E \) — Market value of equity (USD)
\( V \) — Total market value of equity and debt (USD)
\( Re \) — Cost of equity (%)
\( D \) — Market value of debt (USD)
\( Rd \) — Cost of debt (%)
\( Tc \) — Corporate tax rate (%)

Explanation: The formula weights the cost of each capital component by its proportion in the company's capital structure, with debt cost adjusted for tax benefits.

3. Importance of WACC Calculation

Details: WACC is crucial for capital budgeting decisions, valuation analysis, and determining the minimum acceptable return on investment projects. It helps companies evaluate whether to pursue specific investments or projects.

4. Using the Calculator

Tips: Enter all values in USD for monetary amounts and percentages for rates. Ensure V = E + D for accurate calculation. Tax rate should be between 0-100%.

5. Frequently Asked Questions (FAQ)

Q1: Why is WACC important for companies?
A: WACC serves as the discount rate for future cash flows in valuation models and helps determine which projects will create value for shareholders.

Q2: What is a good WACC percentage?
A: Lower WACC is generally better, but acceptable ranges vary by industry. Typically ranges from 5-15% for most established companies.

Q3: How is cost of equity calculated?
A: Cost of equity is often estimated using CAPM (Capital Asset Pricing Model): Re = Rf + β(Rm - Rf), where Rf is risk-free rate and Rm is market return.

Q4: What are the limitations of WACC?
A: WACC assumes constant capital structure, stable business risk, and that new investments have the same risk as existing operations.

Q5: How often should WACC be recalculated?
A: WACC should be updated regularly, especially when market conditions change, capital structure shifts, or for major investment decisions.