WACC Calculator
Weighted Average Cost of Capital (WACC) is a financial metric that represents the average cost a company incurs to finance its operations and assets.
It takes into account the proportional weights and costs of both debt and equity in a company’s capital structure.
WACC is used as a discount rate in financial modeling and valuation to determine the present value of future cash flows.
The WACC calculator allows you to input various financial parameters to determine the weighted average cost of capital for a company.
To use the calculator, simply enter the following values:
- Total Debt (D): The total amount of debt financing used by the company.
This includes loans, bonds, and other forms of borrowed capital.
Example: $1,000,000.
- Total Equity (E): The total amount of equity financing used by the company.
This includes common stock, preferred stock, and retained earnings.
Example: $2,000,000.
- Cost of Debt (Rd): The effective interest rate the company pays on its debt financing.
This is typically the yield to maturity on the company’s bonds or the interest rate on its loans.
Example: 5%.
- Cost of Equity (Re): The required rate of return demanded by equity investors.
This can be estimated using the Capital Asset Pricing Model (CAPM) or other methods.
Example: 12%.
- Corporate Tax Rate (Tc): The marginal tax rate applicable to the company’s earnings.
This is used to calculate the after-tax cost of debt.
Example: 25%.
Once you input these values and click the “Calculate WACC” button, the calculator uses the following formula to determine the WACC:
WACC = (E / (E + D)) × Re + (D / (E + D)) × Rd × (1 – Tc)
Where:
- E / (E + D) represents the proportion of equity financing in the total capital structure.
- D / (E + D) represents the proportion of debt financing in the total capital structure.
- Re is the cost of equity.
- Rd is the cost of debt.
- Tc is the corporate tax rate.
The calculator then displays the results, including:
- Cost of Equity
- Total Equity
- Cost of Debt
- Total Debt
- Corporate Tax Rate
- Weighted Average Cost of Capital (WACC)
By using the WACC calculator, you can quickly determine the overall cost of financing for a company and make informed decisions about capital budgeting, investment analysis, and corporate valuation.