WACC Calculator
Calculate a company's weighted average cost of capital from its equity, debt, cost of equity, cost of debt and tax rate.
How This Is Calculated
WACC = E/(E+D) × Cost of equity + D/(E+D) × Cost of debt × (1 − Tax rate)
Worked example: a company has equity of Rs. 60,000 million and debt of Rs. 40,000 million, so the weights are 60% and 40%. With a 20% cost of equity, a 13.5% pre-tax cost of debt and 29% tax, the after-tax cost of debt is 13.5% × (1 − 0.29) = 9.585%. WACC = 0.6 × 20% + 0.4 × 9.585% = 15.83%.
WACC is the discount rate for a company's free cash flows, and projects should earn more than it. Borrowing is cheaper than equity because of the tax shield, but more debt raises the risk of both, so this model does not say that more debt is always better.
Frequently Asked Questions
What is WACC?
The Weighted Average Cost of Capital is the average rate a company pays to fund itself with equity and debt, weighted by how much of each it uses. It is the standard discount rate for valuing a whole company's cash flows (free cash flow to the firm) and the hurdle rate for new projects.
Why is the cost of debt multiplied by (1 - tax rate)?
Interest on debt is tax-deductible, so every rupee of interest saves tax. The after-tax cost of debt is the pre-tax rate multiplied by (1 - tax rate). The default tax rate here is the 29% standard corporate rate; banks and some sectors pay more (super tax), so adjust it for your company.
Should I use market value or book value for equity and debt?
Textbooks prefer market values: use market capitalization (share price times shares outstanding) for equity. For debt, book value is usually a fine approximation of market value. Enter both in the same unit, such as Rs. million.
Where do I get the cost of equity?
Usually from the CAPM: risk-free rate plus beta times the equity risk premium. Use our CAPM calculator, then click the link on its result page to bring the number here. The default shown uses a beta of 1.0 and the September 2026 PIB yield.
What cost of debt should I use?
Use the average rate the company actually pays on its borrowings, found in the notes to its annual report. If you only have a rough idea, 6-month KIBOR plus a spread of about 2% is a common estimate; the default here is 13.5%.
Does WACC work for banks?
Not well. For a bank, deposits are both funding and the core of the business, so the usual debt-versus-equity framing does not fit. Banks are normally valued with equity-based methods such as the dividend discount model.
This tool is for educational purposes only and does not constitute investment advice. The result is only as good as the inputs; check them against the company's annual report. See also: CAPM Calculator · Fair Value Calculator · All Tools.