Enter the cost of equity (%), the total equity, the cost of debt (%), the total debt, and the corporate tax rate (%) into the WACC Calculator below. The WACC calculator provides a rate that a company must pay on average to all its securities to finance its assets.

## WACC Formula

The formula used by the WAAC Calculator above is as follows:

• Where rE is the cost of equity (%)
• E is the total equity
• rD is the cost of debt (%)
• D is the total debt
• t is the corporate tax rate.

## What is WACC?

The weighted average cost of capital (WACC) is a metric used to assess the cost of capital for a company. It represents the average rate of return a company must generate to satisfy its investors and maintain its overall value.

WACC is calculated by considering the proportion of each source of capital (debt and equity) a company uses, along with their respective costs.

The costs are determined by the interest rate on debt and the expected return on equity. By assigning weights to each source based on their percentage in the company’s capital structure, the WACC is derived.

WACC is an important metric as it helps evaluate the feasibility of investment projects and strategic decisions.

It serves as a benchmark rate of return that a company needs to achieve to create value for its shareholders. If a project or investment generates a return higher than the WACC, it is considered profitable and adds value to the company. On the other hand, if the return is lower than the WACC, it may indicate that the investment is not generating enough value.

Comparing the WACC with the expected return on an investment or project helps assess its profitability and potential risks.

It guides companies in allocating their available capital to projects that have the potential to generate returns higher than the WACC, maximizing shareholder value.

## How to Calculate WACC

We will now go over an example of how to calculate WACC using the calculator above.

1. First, you must determine the total rate of the cost of your equity. This is typically considered the rate of your equity. Let’s assume it is 10% for this example.
2. Next, you need to determine your total equity. This is the total value of all of your assets. Let’s say this is $10,000,000.00. 3. Next, the rate of the debt your raised to purchase that equity needs to be determined. The goal is that this rate will be less than the rate of your equity, or else the funding likely wasn’t worth the cost. 4. Finally, you need to add up the total cost of debt and determine the corporate tax rate. We will assume it’s$5,000,000.00 and 4%. Plug all the values into the calculator above, and you have your WACC in %.

## FAQ

What is WACC?

WACC stands for a weighted average cost of capital and is a measure of the total rate a company pays on average to all of its securities.