Enter the market value of equity, the debt, the cost of each and the tax rate. You see the WACC, the formula with your numbers and how sensitive the result is.
Free and without an account. The calculation runs in your browser; what you enter is not stored anywhere.
market value
in the same unit
before tax
What the WACC is made of
WACC = 80.0% × 9.50% + 20.0% × 5.50% × (1 − 21.0%) = 8.47%
Equity weight times cost of equity, plus debt weight times the after-tax cost of debt.
The WACC at a cost of equity one percentage point higher or lower and at ten percentage points more or less debt.
| Cost of equity | 10% debt | 20% debt | 30% debt |
|---|---|---|---|
| 8.50% | 8.08% | 7.67% | 7.25% |
| 9.50% | 8.98% | 8.47% | 7.95% |
| 10.50% | 9.88% | 9.27% | 8.65% |
WACC stands for weighted average cost of capital: the return a company has to earn on average to compensate its shareholders and lenders. It is the discount rate in a DCF valuation.
Cost of equity is usually calculated with CAPM: the risk-free rate plus the stock's beta times the market risk premium. Cost of debt is the interest rate the company pays on its borrowings.
Interest is deductible from profit. That is why the cost of debt counts after tax. Use market values for the weights: market capitalisation for equity and interest-bearing debt for debt.
WACC = E/V × Re + D/V × Rd × (1 − T)
E is the market value of equity, D that of debt and V the sum of the two. Re is the cost of equity, Rd the cost of debt and T the tax rate. With CAPM: Re = Rf + β × market risk premium.
A company has 800 million of equity and 200 million of debt. Cost of equity is 4 + 1.1 × 5 = 9.5 percent. Debt costs 5.5 percent and the tax rate is 21 percent. WACC = 80% × 9.5% + 20% × 5.5% × (1 − 0.21) = 8.47 percent.
In Insiviz you run a valuation with your own scenarios for any stock, next to the company's own figures.
For large, stable listed companies WACC often falls between 6 and 10 percent. Young or risky companies have a higher WACC. It depends on the sector, the debt and the level of interest rates.
WACC is about the return investors require today. That belongs with today's value, not with the amount once recorded in the books. For debt, book value is usually close to market value.
Usually the yield on a ten-year government bond in the currency of the cash flows: a US Treasury for dollars, a German Bund for euros.
Beta measures how strongly a stock moves with the market. At 1 it moves on average as much as the market, above 1 more and below 1 less.
Debt is usually cheaper than equity and the interest is deductible. Up to a point that lowers WACC. With a lot of debt the risk rises, and with it the cost of both debt and equity.
This tool calculates with the assumptions you enter yourself. It is information and not investment advice.