WACC Calculator

How to use the WACC Calculator

1. Enter the Market Value of Equity (the total market valuation of your company's outstanding shares).
2. Set the Cost of Equity directly, or turn on the CAPM Toggle to calculate it dynamically using:
   • Risk-Free Rate ($R_f$): The current yield on long-term government bonds (e.g., 7% for Indian Government Bonds).
   • Equity Beta ($\beta$): The systematic volatility of your stock relative to the overall market (Beta = 1.0 means same risk as index; > 1.0 is higher risk).
   • Expected Market Return ($R_m$): The historical annual return rate of the stock market index.
3. Enter the Market Value of Debt (total book or market value of outstanding corporate loans, bonds, and debentures).
4. Specify the interest rate on debt (Pre-tax Cost of Debt) and the corporate tax rate, which generates a tax-shield saving.
5. If preferred stock is part of your capital structure, enter its value and dividend rate under Preferred Stock.
6. Review the Donut Weight Chart and the WACC Sensitivity Curve to find how varying leverage ratios affect your capital cost.

Understanding WACC & Capital Structure

The Weighted Average Cost of Capital (WACC) is the average rate a business is expected to pay to finance its assets. It represents the minimum return a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital.

The Debt Tax Shield: Debt is cheaper than equity because interest payments on corporate debt are tax-deductible. The effective post-tax cost of debt is $R_d \times (1 - T)$. This tax benefit reduces WACC, encouraging companies to use moderate leverage.

Optimal Capital Structure: The WACC sensitivity chart plots how your WACC changes as your debt ratio changes. Generally, WACC decreases as cheap debt is added, but starts increasing again at high leverage levels due to growing financial distress risk.