How much does the capital that finances a company cost, on average? The WACC (Weighted Average Cost of Capital) is the metric that answers. This calculator determines it from equity, debt and their costs: it calculates the WACC, the weights of equity and debt, the after-tax cost of debt and the total capital, telling you whether the cost of capital is low, moderate or high. It is the fundamental tool to value investments and companies with the right discount rate.

What WACC is

The WACC is the average cost of the capital a company uses to finance its activity, weighted by how much equity (own capital) and debt weigh. A company finances itself with a combination of own funds — on which shareholders expect a return — and debt — on which it pays interest. The WACC combines these two costs into a single percentage, which represents the minimum return the company must generate to satisfy all its financiers.

What the acronym means

WACC stands for "Weighted Average Cost of Capital". "Weighted" because each source of financing weighs in proportion to its value in the total capital. If a company is financed 60% with equity and 40% with debt, the cost of equity will weigh 60% and that of debt 40% in the WACC calculation. It is a weighted average, not a simple arithmetic mean of the two costs.

The components: equity and debt

The WACC has two components. The cost of equity is the return shareholders expect for the risk they take investing in the company; it is often estimated with the CAPM model. The cost of debt is the interest rate the company pays on financing. Typically equity costs more than debt, because shareholders take more risk than creditors and demand a higher return. The WACC balances these two costs according to their weights.

The tax shield of debt

Debt has an advantage over equity: the interest is deductible from taxes. This creates a "tax shield" that reduces the effective cost of debt. If a company pays 5% interest and the tax rate is 25%, the after-tax cost of debt is 5% × (1 − 0.25) = 3.75%. That is why the after-tax cost of debt is used in the WACC: debt is even more advantageous than equity thanks to deductibility.

How the calculator works

Enter the equity value, the debt value, the cost of equity, the cost of debt and the tax rate. The calculator determines the weights of equity and debt on the total capital, applies the tax shield to the cost of debt and calculates the WACC as a weighted average. The verdict places the WACC relative to typical levels, telling you whether the company's cost of capital is contained or high.

The values you need

The equity value is the own capital, ideally at market values (the market cap for listed companies). The debt value is the total of interest-bearing financing. The cost of equity is the return expected by shareholders. The cost of debt is the average rate on financing. The tax rate is the one on corporate profit. Use market values and realistic estimates for a reliable WACC.

The WACC

The WACC is the main result: the weighted average of the cost of equity and the after-tax cost of debt. It represents the overall cost of the company's capital and, at the same time, the minimum return that investments must generate to create value. A lower WACC means cheaper capital and greater ease in creating value; a high WACC makes it harder to justify new investments, because the bar of the required return is higher.

The weights of equity and debt

The weights indicate how much of the capital comes from equity and how much from debt. A company financed 60% with equity and 40% with debt has weights of 0.6 and 0.4. The capital structure strongly influences the WACC: since debt (after tax) costs less than equity, increasing the share of debt tends to lower the WACC — up to a point, beyond which financial risk grows and costs rise. The weights show how the company is financed.

The after-tax cost of debt

The after-tax cost of debt is the effective cost of debt after the tax shield: cost of debt × (1 − tax rate). It is always lower than the nominal cost of debt, thanks to the deductibility of interest. This is the value that enters the WACC, not the nominal rate. The difference between the two depends on the tax rate: the higher the rate, the greater the tax saving and the more advantageous debt becomes relative to equity.

The WACC as a hurdle rate

The WACC is the hurdle rate of investments: a project creates value only if its expected return exceeds the WACC. If the WACC is 7.5% and an investment returns 10%, it creates value; if it returns 5%, it destroys it, because it does not even cover the cost of capital. That is why the WACC is the discount rate used in valuations with discounted cash flows (DCF): it is the reference point for every investment decision.

The effect of leverage on the WACC

Increasing debt (financial leverage) changes the WACC. On €1,000,000 of capital, with cost of equity 10% and cost of debt 5% (25% tax rate):

More debt lowers the WACC thanks to its lower cost, but beyond a certain level financial risk raises both costs.

The WACC as a hurdle rate in practice

How to use the WACC to decide on an investment:

The return of an investment must always be compared with the WACC: it is the minimum threshold to generate value.

Components of the WACC

What enters the calculation and with what weight:

The WACC is the sum of these two weighted components: the average cost of the company's capital.

WACC and company valuation

The WACC is the central discount rate in valuation with discounted cash flows (DCF). The company's future cash flows are projected and discounted at the WACC to obtain the present value. A lower WACC increases the present value of future flows, and therefore the value of the company; a higher WACC reduces it. That is why the WACC is one of the most delicate parameters of any valuation: small variations can significantly change the result.

The limits of the WACC

The WACC is powerful but is based on estimates. The cost of equity is not directly observable and must be estimated (with the CAPM or other models), introducing uncertainty. The WACC also assumes a constant capital structure over time, while in reality it changes. Finally, it ideally uses market values of equity and debt, not always available. That is why the WACC should be considered a reasonable estimate, not an exact number: small differences in assumptions produce different WACCs.

Common mistakes

• Using the nominal cost of debt instead of the after-tax one.
• Using book values instead of market values for equity and debt.
• Underestimating the cost of equity, which is almost always higher than debt.
• Assuming that more debt always lowers the WACC, ignoring the growing risk.
• Applying a single WACC to projects with very different risk profiles.

How to use the calculator

Enter equity, debt, the two costs of capital and the tax rate. Read the WACC and the weights, and use it as a hurdle rate to value investments: compare the expected return of a project with the WACC. Try different capital structures to see how the WACC changes as leverage varies. It is the quickest way to estimate a company's cost of capital and have the right discount rate for DCF valuations.

Practical example

A company is financed with €600,000 of equity and €400,000 of debt, with a cost of equity of 10%, a cost of debt of 5% and a tax rate of 25%. The result: weights of 60% equity and 40% debt, an after-tax cost of debt of 3.75%, a total capital of €1,000,000 and a WACC of 7.5%, with the verdict "moderate WACC: in line with many companies". It means that every investment of the company must return at least 7.5% to create value. Enter your numbers for your real situation. The cost of equity and debt are estimates; the WACC assumes a constant capital structure and market values. It is an informational estimate.

Frequently asked questions

What is the WACC?

It is the weighted average cost of a company's capital: the average of the costs of equity and debt, weighted by how much each contributes to the financing. It represents the minimum return the company must generate to satisfy its financiers.

How is the WACC calculated?

WACC = (equity/total capital) × cost of equity + (debt/total capital) × after-tax cost of debt. The cost of debt is multiplied by (1 − tax rate) to account for the deductibility of interest.

What does the acronym WACC mean?

WACC stands for "Weighted Average Cost of Capital". "Weighted" because each source of financing weighs in proportion to its value in the company's total capital.

Why is the cost of debt used after tax?

Because interest is deductible: it reduces taxes, creating a tax shield. The effective cost of debt is therefore lower than the nominal one: cost of debt × (1 − tax rate). It is this value that enters the WACC.

What is the WACC used for?

It is the hurdle rate to value investments: a project creates value only if it returns more than the WACC. It is also the discount rate used in company valuations with discounted cash flows (DCF).

What is a good WACC?

It depends on the sector and risk. In general, under 6% is low, between 6% and 9% is moderate, between 9% and 12% is high, over 12% is very high. A lower WACC means cheaper capital.

Does more debt always lower the WACC?

Up to a point yes, because debt costs less than equity. But beyond a level, excess debt increases financial risk, raises both the cost of debt and that of equity, and the WACC can rise again.

How is the cost of equity estimated?

Often with the CAPM model: cost of equity = risk-free rate + beta × market risk premium. It is an estimate, because the return expected by shareholders is not directly observable like an interest rate.

Should I use book or market values?

Ideally market values: for equity the market capitalization, for debt the market value of financing. Book values can distort the weights, especially for the equity of listed companies.

Are the WACC and the DCF discount rate the same thing?

In valuations with the cash flows of the entire company (unlevered), yes: the WACC is the rate at which future flows are discounted to obtain the present value. It is one of the main uses of the WACC.

Does a single WACC apply to all projects?

No: the WACC reflects the average risk of the company. Projects with risk very different from the average should be valued with a discount rate appropriate to their specific risk, not with the corporate WACC.

Does it work for any country and currency?

Yes, the WACC is an international metric and the calculation is universal: use the values in your currency. The costs of capital and tax rates vary by country and sector, so use those relevant to your company.

Updated July 2026