WACC Calculator
Cost of equity from CAPM, cost of debt after tax, and the blended rate to discount a DCF with.
Cost of equity comes from CAPM: 4.0% plus a beta of 1.2 times the 6.0% equity risk premium. Debt is cheaper twice over, because lenders take less risk and the interest is deductible, which is what the 79% multiplier represents. Use this as the discount rate in a DCF.
Worked example. An $800M market cap with $200M of debt is 80% equity and 20% debt. At a 4% risk-free rate, a beta of 1.2, and a 10% market return, CAPM gives an 11.2% cost of equity. Debt at 6% costs 4.74% after a 21% tax rate. The blend is 9.91%, and that is the number a DCF should discount with.
Frequently asked questions
Why is debt cheaper than equity?
Twice over. Lenders rank ahead of shareholders and take less risk, so they accept a lower return, and interest is tax deductible, which is what the (1 − tax rate) multiplier captures. That deduction is why the after-tax cost of debt is meaningfully below the coupon.
Where do I get beta?
Most data providers publish it, typically measured against the S&P 500 over three to five years. It is a backward-looking proxy for forward-looking risk, which is its central weakness. For a private company, an average of comparable public firms is the usual approach.
Should I use book or market values?
Market values for equity, always. Book equity reflects historical accounting rather than what the company is worth today. Book value for debt is usually an acceptable approximation unless the debt trades well away from par.
Does more debt always lower WACC?
Only up to a point. Beyond it, both lenders and shareholders demand more for the added risk of financial distress, and WACC turns back up. This calculator holds your input rates fixed, so it will keep falling as you add debt; that is a limitation of the arithmetic, not a finding.
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Calculators model hypothetical outcomes from the inputs you provide. They are informational only, not financial, investment, tax, or legal advice.