Use this calculator to determine your company's Weighted Average Cost of Capital (WACC). Enter the required financial information to evaluate your company's overall cost of capital.
The Weighted Average Cost of Capital (WACC) is a crucial financial metric used to determine a company's cost of capital. It represents the average rate a company is expected to pay to finance its assets, taking into account both equity and debt financing. Understanding how to calculate WACC is essential for financial analysts, investors, and corporate finance professionals in making informed decisions about capital structure and investment opportunities.
The formula for calculating WACC is:
$$\text{WACC} = (E / V) \times R_e + (D / V) \times R_d \times (1 - T_c)$$
Where:
Let's calculate the WACC for a company with the following data:
Step 1: Calculate total market value of financing
$$V = E + D = 800 + 200 = 1000 \text{ million}$$
Step 2: Calculate weights of equity and debt
$$\text{Weight of Equity} = E / V = 800 / 1000 = 0.8 \text{ or } 80\%$$
$$\text{Weight of Debt} = D / V = 200 / 1000 = 0.2 \text{ or } 20\%$$
Step 3: Apply the WACC formula
$$\text{WACC} = 0.8 \times 12\% + 0.2 \times 6\% \times (1 - 30\%)$$
$$\text{WACC} = 9.6\% + 0.84\% = 10.44\%$$
Therefore, the Weighted Average Cost of Capital for this company is 10.44%.
This diagram illustrates the capital structure of the company and its WACC. The blue bar represents the weight of equity (80%), the green bar represents the weight of debt (20%), and the red dashed line indicates the WACC (10.44%).