Cost of Capital Calculator

Calculate the weighted average cost of capital (WACC) - the blended rate a company pays to finance itself with equity and debt - from your capital structure, cost of equity, cost of debt, and tax rate.

Quick Facts

Formula
WACC = (E/V × Re) + (D/V × Rd × (1 − Tc))
E and D are the market values of equity and debt, V = E + D, and Re/Rd are their respective costs.
Why the tax adjustment
Interest is tax-deductible
Multiplying the cost of debt by (1 − Tc) reflects the tax shield: interest payments lower taxable income, so the after-tax cost of borrowing is less than the stated rate.

Your Results

Calculated
Weighted average cost of capital
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WACC - blended cost of financing
Capital structure mix
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Equity weight (E/V) vs. debt weight (D/V)
After-tax cost of debt
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Rd × (1 − Tc)
Total capital
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Equity + debt (E + D)

Ready

Enter the market value of equity and debt, the cost of each, and the tax rate, then press Calculate.

How the Cost of Capital Calculator works

This tool computes the weighted average cost of capital (WACC): the blended rate a company effectively pays to fund its assets with a mix of equity and debt. It is the standard formula finance teams use as a discount rate for valuing cash flows and as a hurdle rate for judging whether a project or investment is worth pursuing.

The formula

For a market value of equity E, a market value of debt D, total capital V = E + D, a cost of equity Re, a pre-tax cost of debt Rd, and a marginal corporate tax rate Tc, WACC is:

WACC = (E / V × Re) + (D / V × Rd × (1 − Tc))

The equity term is weighted by equity's share of total capital and uses the cost of equity as-is. The debt term is weighted by debt's share of total capital and uses the after-tax cost of debt, because interest expense is typically tax-deductible and lowers the company's taxable income.

Worked example

Take $600,000 of equity at a 10% cost of equity, and $400,000 of debt at a 6% pre-tax cost of debt, with a 21% tax rate. Total capital is $1,000,000, so the equity weight is 60% and the debt weight is 40%. The after-tax cost of debt is 6% × (1 − 0.21) = 4.74%. WACC = (0.60 × 10%) + (0.40 × 4.74%) = 6.00% + 1.896% ≈ 7.90%.

What moves WACC most

  • Capital structure mix: shifting more of total capital toward debt lowers WACC as long as the after-tax cost of debt stays below the cost of equity, since debt weight rises relative to equity weight.
  • Cost of equity: equity is usually the more expensive source of capital because shareholders bear more risk than lenders, so a higher cost of equity pulls WACC up more than an equal change in the cost of debt.
  • Tax rate: a higher corporate tax rate makes the debt tax shield larger, lowering the after-tax cost of debt and, in turn, WACC — holding the pre-tax cost of debt and capital structure constant.

Market value vs. book value, and limitations

The standard formula calls for market values of equity and debt, not book (accounting) values, since market value reflects what investors would pay or receive today. Equity market value is typically share price multiplied by shares outstanding; debt market value is often approximated with book value when market prices for the company's bonds or loans are not readily observable. This calculator treats the cost of equity and cost of debt as inputs you supply — it does not derive the cost of equity from CAPM or estimate a market-implied cost of debt, so the quality of the result depends on the quality of the rates you enter.

Frequently Asked Questions

How is the weighted average cost of capital calculated?
WACC blends the cost of equity and the after-tax cost of debt, weighted by each source's share of total capital: WACC = (E/V × Re) + (D/V × Rd × (1 − Tc)), where E and D are the market values of equity and debt, V = E + D, Re is the cost of equity, Rd is the pre-tax cost of debt, and Tc is the marginal corporate tax rate.
Why is the cost of debt multiplied by (1 − tax rate)?
Interest paid on debt is typically tax-deductible, which creates a tax shield that lowers the effective cost of borrowing. Multiplying the pre-tax cost of debt by (1 − Tc) converts it into an after-tax figure that reflects what the company actually pays once the tax benefit is accounted for.
Should I use market value or book value for equity and debt?
The standard WACC formula uses market values, since market value reflects what investors would actually pay or receive today. Equity market value is typically share price multiplied by shares outstanding; a company's debt is often approximated with book value when market prices for its bonds are not readily available.
What is WACC used for?
WACC is most commonly used as the discount rate in discounted cash flow (DCF) and net present value (NPV) analysis, and as a hurdle rate: a proposed investment or project is generally expected to earn a return at least equal to WACC to create value for both shareholders and lenders.

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