WACC Calculator


WACC Calculator is used to calculate the Weighted Average Cost of Capital, the minimum acceptable return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. It is a way for companies to determine if a prospective investment is worthwhile to undertake.

Wacc:
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Weighted Average Cost of Capital
What does Weighted Average Cost of Capital (WACC) mean?
The weighted average cost of capital or WACC is the rate a company expects to pay on average to finance its assets. Company’s primary sources of financing include two things; debt and equity. WACC is the average cost of raising that money.
Importance of WACC
The importance WACC is of financial use to both investor and the company. It is a significant tool for the companies to make their investment decisions and evaluate projects with similar and dissimilar risks.
Formula

WACC = x Re + x Rd x (1 – Tc)

Where:-

  • Re = cost of equity
  • Rd = cost of debt
  • E = market value of the firm’s equity
  • D = market value of the firm’s debt
  • V = E + D
  • E/V = percentage of financing that is equity
  • D/V = percentage of financing that is debt
  • Tc = Tax rate
Example

Let’s consider a firm's financial data:

  • Equity = $8,000
  • Debt = $2,000
  • Re = 12.5%
  • Rd = 6%
  • Tax rate = 30%

Applying, the formula:-

  • WACC = [( x 0.125)] + [( * 0.06 * (1 - 0.3)]

WACC for this firm is 10.84%.

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