What is the WACC formula?

WACC = (E ÷ V) × Re + (D ÷ V) × Rd × (1 − Tc), where V = E + D.

Why is the cost of debt multiplied by (1 − tax rate)?

Interest payments are tax-deductible, so each unit of interest costs the company only (1 − T) after tax.

Should I use book or market values?

Market values are preferred because they reflect what investors would pay today.

How do I include preferred stock?

Add a third term: (P ÷ V) × Rp, with V = E + D + P. Preferred dividends are not tax-deductible.

WACC Formula and Calculator

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WACC Calculator

The weighted average cost of capital is the average return a company must pay its investors, weighting the cost of equity and the after-tax cost of debt by how much of each the company uses. It is the hurdle rate for average-risk projects and the discount rate in most discounted cash flow valuations: a project that earns more than the WACC creates value.

Formula

WACC = EV × R_e + DV × R_d × (1 − T_c) V = E + D

Where

E: market value of equity
D: market value of debt
V: total capital, E + D
R_e: cost of equity
R_d: pre-tax cost of debt
T_c: corporate tax rate

Calculator

Market value of equity (E)

Market value of debt (D)

Cost of equity (Re) (%)

Pre-tax cost of debt (Rd) (%)

Tax rate (Tc) (%)

Result and step-by-step solution

WACC

7.8%

Projects should earn more than 7.8% to create value for both lenders and shareholders.

Total capital and weights
V = 600,000.00 + 400,000.00 = 1,000,000.00; E/V = 60%, D/V = 40%
After-tax cost of debt
6% × (1 − 25%) = 4.5%
Weight the costs
60% × 10% + 40% × 4.5% = 6% + 1.8% = 7.8%

How to use the formula

Use market values, not book values, for the weights where possible: the share price times shares outstanding for equity, and the market value of bonds and loans for debt. The cost of equity usually comes from the CAPM; the cost of debt is the yield the company pays on new borrowing, and it is multiplied by (1 − tax rate) because interest is tax-deductible.

In the example the company has 600,000 of equity costing 10% and 400,000 of debt at 6%, with a 25% tax rate. The weights are 60% and 40%, the after-tax cost of debt is 4.5%, and the WACC is 6% + 1.8% = 7.8%. Adding more debt lowers WACC at first because debt is cheaper, but beyond a point it raises the cost of both debt and equity. The WACC is the natural discount rate for the NPV calculator.

Frequently asked questions

What is the WACC formula?: WACC = (E ÷ V) × R_e + (D ÷ V) × R_d × (1 − T_c), where V = E + D.
Why is the cost of debt multiplied by (1 − tax rate)?: Interest payments are tax-deductible, so each unit of interest costs the company only (1 − T) after tax.
Should I use book or market values?: Market values are preferred because they reflect what investors would pay today.
How do I include preferred stock?: Add a third term: (P ÷ V) × R_p, with V = E + D + P. Preferred dividends are not tax-deductible.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.