WACC Calculator: Debt, Equity, Preferred Stock and CAPM

WACC formula

Weighted average cost of capital combines the required returns for each source of financing using market-value weights:

WACC = E/V × K_e + D/V × K_d × (1 − T) + P/V × K_p

E is equity market value, D is debt market value, P is preferred-stock market value and V = E + D + P. K_e, K_d and K_p are their respective costs, and T is the marginal corporate tax rate. Preferred dividends do not receive the debt-interest tax adjustment in this model.

Optional CAPM estimate

When CAPM is selected, the calculator estimates the cost of equity as:

K_e = R_f + β × (R_m − R_f)

The risk-free rate, beta and expected market return must use a consistent currency, horizon and nominal or real basis. CAPM is a model input, not a forecast or guaranteed shareholder return.

Checked examples

• Direct cost of equity: equity 700,000 at 12%, debt 300,000 at 6%, tax 25% and no preferred stock produce WACC of 9.75%.
• CAPM: equity 8,000,000, debt 2,000,000, risk-free 4.5%, beta 1.2, market return 10%, debt cost 6.5% and tax 25% produce cost of equity 11.10% and WACC 9.855%.
• Preferred stock: equity 600,000 at 11%, debt 300,000 at 7%, preferred stock 100,000 at 8% and tax 25% produce WACC 8.975%.

How to use the result

1. Use current market values when they are available; book values may produce different weights.
2. Match the discount rate to the cash flows. WACC is generally paired with cash flows to the firm, not cash flows only to equity.
3. Run scenarios when leverage, tax rates or required returns could change instead of treating one WACC as permanent.

Limits

• The tax shield is modeled as Kd × (1 − T); actual deductibility can be limited or unavailable.
• WACC can vary by project, business risk, country, currency, maturity and capital structure.
• The calculator does not estimate credit spreads, beta, market values, flotation costs or target leverage from company data.
• This is an educational valuation tool, not investment, accounting, tax or financing advice.

Related calculators

Use the NPV Calculator to discount a cash-flow series at the selected WACC. Use the ROI Calculator for a simpler gain-versus-cost comparison and the Business Loan Calculator to examine loan payments, fees and effective annual cost.

Formula references

Aswath Damodaran’s NYU Stern data definitions describe cost of capital as the market-value-weighted cost of equity plus after-tax cost of debt, define after-tax debt cost as pre-tax debt cost multiplied by one minus the tax rate, and give the CAPM cost-of-equity relationship. See Variables Used in Data Set and Capital Structure lecture notes.