| Component | Value | Weight | Cost used | Contribution |
|---|
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Discount rate typically used in DCF valuation, project NPV and capital-structure decisions.
Free online WACC calculator — enter the market value of equity, debt and (optionally) preferred stock along with each source's cost and the corporate tax rate, and instantly get the weighted average cost of capital with the full component-by-component breakdown, the formula plugged in with your numbers, and a worked example. Everything runs in your browser — no signup, no Excel.
The Weighted Average Cost of Capital (WACC) is the blended rate a company pays to finance its assets across all sources of capital — equity, debt and preferred stock — each weighted by its share of the total capital structure. It is the standard discount rate used in DCF valuation, project NPV, capital-budgeting decisions and enterprise-value modelling.
The general WACC equation (with preferred stock) is:
WACC = (E/V × Re) + (D/V × Rd × (1 − Tc)) + (P/V × Rp)
| Symbol | Meaning |
|---|---|
| E | Market value of equity |
| D | Market value of debt |
| P | Market value of preferred stock |
| V | Total capital = E + D + P |
| Re | Cost of equity (from CAPM: Rf + β × ERP) |
| Rd | Cost of debt (pre-tax) |
| Rp | Cost of preferred stock |
| Tc | Corporate tax rate |
Interest on debt is tax-deductible, which is why debt is multiplied by (1 − Tc) — the famous "tax shield" of debt financing. Preferred dividends are not tax-deductible, so no tax adjustment is applied to Rp.
Suppose a company has $600,000 of equity at a 12% cost, $400,000 of debt at 8% pre-tax cost, and a 25% corporate tax rate:
V = 600,000 + 400,000 = 1,000,000
Weight of equity = 600,000 / 1,000,000 = 60%
Weight of debt = 400,000 / 1,000,000 = 40%
After-tax cost of debt = 8% × (1 − 0.25) = 6%
WACC = (0.60 × 12%) + (0.40 × 6%) = 7.20% + 2.40% = 9.60%
This 9.60% is the minimum return the firm must earn on its existing assets — and the discount rate that any new project must beat — to keep every capital provider (shareholders and lenders) whole.
1. Choose Equity + Debt or add Preferred stock from the toggle.
2. Enter the market value of each source (not book value from the balance sheet — market cap for equity, market price of bonds for debt).
3. Enter each source's cost as a percent — cost of equity typically comes from the CAPM, cost of debt from the yield-to-maturity on outstanding bonds, cost of preferred from the fixed dividend divided by market price.
4. Enter the effective corporate tax rate — the tax shield only applies to debt.
5. The calculator shows each component's weight, the after-tax cost of debt, the formula with your numbers plugged in and the final WACC.
Model debt EMIs with the EMI Calculator, monthly investment growth with the SIP Calculator, fixed-deposit yields with the FD Calculator, compounding growth with the Compound Interest Calculator, or browse everything on the Tools page.
A "good" WACC is a low one — lower cost of capital means more projects clear the hurdle rate and higher enterprise value in a DCF. Typical mature-company WACC sits in the 7–10% range in developed markets; higher-risk emerging-market and small-cap firms commonly see 12–18% because both equity and debt cost more.
Because interest payments are tax-deductible for the company. Every $1 of interest reduces taxable income by $1, saving Tc dollars in tax — so the true after-tax cost of debt to shareholders is Rd × (1 − Tc). Preferred dividends are paid from after-tax income and get no such adjustment.
Market value. WACC represents the return required by today's investors on the capital they have committed today — that's a market-price concept. Book values are historical accounting numbers and can be far off (equity book value in particular is often a small fraction of market cap for profitable firms).
The standard approach is the Capital Asset Pricing Model (CAPM): Re = Rf + β × (Rm − Rf), where Rf is the risk-free rate (10-year government bond yield), β is the stock's beta vs. the market, and (Rm − Rf) is the equity-risk premium. Alternatives include the dividend-discount model and the bond-yield-plus-risk-premium method.
Only projects with risk comparable to the firm as a whole. A greenfield R&D bet is riskier than the existing business and should use a higher discount rate; a low-risk lease with a AAA counterparty is safer and can use a lower one. Using a single firm-wide WACC over- or under-invests systematically when project risk differs from firm risk.
Yes — click the Equity + Debt + Preferred toggle at the top and a preferred-stock section appears. Enter the market value of preferred and its cost (fixed dividend / market price). The full three-source formula is applied and the breakdown table shows each contribution.