How this calculator works
Weight the required common equity return and after-tax debt cost by their market values. This two-source model assumes interest is deductible at the marginal rate entered and that target leverage remains stable. Use the cost of capital calculator when preferred financing also needs a separate weight.
Formula
WACC = [E × ke + D × kd × (1 - T)] / (E + D). E and D are market values; ke and kd are annual costs; T is the usable marginal tax rate.
Worked example
With $600,000 equity at 10%, $400,000 debt at 5%, and a 25% tax rate, WACC is 7.5%. With no debt and $1,000,000 equity at 8%, WACC is 8%.
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Frequently asked questions
Should I use book equity?
Market or target financing values are normally used for valuation weights. Book equity can be very different.
What if the company cannot use its interest tax shield?
Use an effective usable tax shield appropriate to the analysis, including zero where no deduction is available.
Why do some inverse modes have no solution?
A missing financing amount is not uniquely identifiable when the component costs are equal. A zero weight also removes sensitivity to its cost.