# WACC Calculator (Weighted Average Cost of Capital)

LAST UPDATE: September 25th, 2020

## Definition – What is weighted average cost of capital?

WACC is the cost of a firm’s capital where each category is proportionally weighted.

## Formula – How to calculate WACC

WACC = ((Market Value of Equity / (Market Value of Equity + Market Value of Debt)) x Cost of Equity) + ((Market Value of Debt / (Market Value of Equity + Market Value of Debt) x Cost of Debt x (1 – Tax Rate))

Convert all percentages to a decimal (divide by 100%). Convert the final result back to a percentage (multiply by 100%).

### Example

A firm has a cost of equity of 5.5%, cost of debt of 6.5%, market value of equity of \$50,000, and market value of debt of \$45,000. The corporate tax rate is 25%.

WACC = ((\$50,000 / (\$50,000 + \$45,000)) x 0.055) + ((\$45,000 / (\$50,000 + \$45,000) x 0.065 x (1 – 0.25))

WACC = ((\$50,000 / \$95,000) x 0.055) + ((\$45,000 / \$95,000) x 0.065 x 0.75))

WACC = (0.5263 x 0.055) + (0.4737 x 0.065 x 0.75)

WACC = 0.0289 + 0.0231

WACC = 0.052, or 5.2%

Therefore WACC in this firm is 5.2%.