Cost Of Capital Calculator

Background.

Every dollar a company puts to work came from somebody expecting something back. Lenders want their interest. Shareholders want dividends and a rising share price, and because they are paid last and carry more risk, they expect more. The weighted average cost of capital, or WACC, blends those two demands into one percentage: the return the business has to earn on its assets just to keep both groups whole.

That percentage does real work. Analysts use it as the discount rate when valuing a company from its future cash flows, and managers treat it as a hurdle — a project expected to return 7% is destroying value if the money behind it costs 9%. Small differences add up quickly: $100,000 a year forever is worth about $1.11 million discounted at 9%, but only about $952,000 at 10.5%.

Debt usually looks cheap in the blend, for two reasons. Lenders accept less because they are paid first, and where interest is tax-deductible the government effectively picks up part of the bill. That is why the debt rate is multiplied by one minus the tax rate before it is weighted.

The weights are market values rather than balance-sheet figures: what the shares are worth today and what the debt would fetch. Only two sources are handled, common equity and interest-bearing debt. Preferred shares, issuance costs, a target capital structure and a tax shield that changes over time are left out, and both costs are treated as fixed inputs — in reality, loading on more debt makes the remaining equity riskier and dearer.

What is cost of capital calculator?

WACC is the average annual return a company owes its investors, with each source of money weighted by its share of the firm's total market value. In this version there are two sources: equity, priced at the return shareholders require, and debt, priced at the company's borrowing rate after the tax saving on interest. Because it blends the whole capital base, it describes the company's average risk, not the risk of any one project, and it is quoted as a percentage per year.

How to use this calculator.

1. 01For market value of equity, use share price × shares outstanding (the market capitalisation). A private company has no quoted price, so a recent valuation or transaction is the usual stand-in.
2. 02For debt, include interest-bearing borrowing only — bank loans, bonds, notes — at market value where the bonds trade and at book value otherwise. Leave out trade payables and other liabilities that carry no interest.
3. 03Enter the cost of equity as an annual percentage. It is usually estimated with the capital asset pricing model: a risk-free rate plus beta times the equity risk premium.
4. 04For the pre-tax cost of debt, use what the company would pay to borrow today, such as the yield on its bonds or a current loan quote, not the coupon on debt raised years ago.
5. 05Enter the marginal tax rate — the rate on the next dollar of profit — then read the WACC together with the after-tax cost of debt.

The formula.

WACC = E/(D + E) × Re + D/(D + E) × Rd × (1 − T). E and D are the market values of equity and debt, so E/(D + E) and D/(D + E) are the two shares of total capital and always sum to one. Re is the cost of equity and Rd the pre-tax cost of debt, both annual percentages. T is the marginal tax rate: multiplying Rd by (1 − T) gives the after-tax cost of debt, because each dollar of interest trims a dollar from taxable income. Equity gets no such adjustment, since dividends are paid out of after-tax profit. The answer is usually most sensitive to Re, which is the higher rate and often the larger weight. With D at zero the WACC is simply the cost of equity; with both values at zero there is nothing to weight, and the page asks for a positive total.

A worked example.

Frequently asked questions.

References& sources.

1. [1]OpenStax, Rice University. Principles of Finance, 2022. Chapters 6–10. Retrieved 2026-08-06.
2. [2]U.S. Internal Revenue Service. Tax guidance current 2026. Official forms, instructions and tax topics. Retrieved 2026-08-06.
3. [3]U.S. Securities and Exchange Commission. Investor.gov current 2026. Investment products and risk. Retrieved 2026-08-06.