Weighted average cost of capital: Building a Weighted Cost of Capital
WACC weights equity and debt costs by their shares of financing and adjusts debt cost for an assumed tax effect. Each input represents an explicit valuation assumption.
Use the Weighted average cost of capital Calculator to enter your own figures and compare the result with the worked example below.
Weighted average cost of capital formula
WACC = (E/V)×Re + (D/V)×Rd×(1−Tax rate)
Worked example
| Item | Example value |
|---|---|
| Equity market value | 600000 USD |
| Debt market value | 400000 USD |
| Cost of equity | 10 % |
| Cost of debt | 5 % |
| Tax rate | 25 % |
| Weighted average cost of capital | 7.5% |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Use compatible financing values and a tax rate appropriate to the modeled deduction. WACC is not a universal discount rate for every project.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see SEC: Understanding financial statements. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
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