WACC Calculator
This is an online WACC calculator that helps you find out how profitable your company needs to be in order to generate value.
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its sources of capital. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation. Importantly, WACC is dictated by the external market and not by management. The WACC represents the minimum 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.
WACC formula
WACC is a very important metric and used in investment decisions. It is very often called the hurdle rate. Calculating WACC is straight forward when you know what the components in it shown as the following:
WACC = [ E / ( D + E ) ] (re) + [ D / ( D + E ) ] (rd) (1 – t)
where:
- E = market value of equity
- D = market value of debt
- re = cost of equity
- rd = cost of debt
- t = corporate tax rate
WACC example
| Refers to | Value |
|---|---|
| Equity | 575000 |
| Debt | 475000 |
| Total market value | 1,050,000 |
| % Cost of equity | 6% |
| % Cost of debt | 7% |
| Tax rate | 3.75% |
| WACC | 6.334% |
Thus, the overall rate of return desired by all investors (stock and bond) in a company is at least greater than 6.334%.