WACC Calculator
From the market values of equity and debt, their costs and the tax rate, compute the weighted average cost of capital (WACC).
Input Data
Results
At a glance:WACC is the blended cost of equity and debt. WACC = (E ÷ (E + D)) × cost of equity + (D ÷ (E + D)) × cost of debt × (1 − tax rate). The debt term is after tax because interest is deductible; Hong Kong's standard rate is about 16.5%. It is the discount rate for company valuation.
Formula
Weight of equity = E ÷ (E + D); weight of debt = D ÷ (E + D).
WACC = weightE × cost of equity + weightD × cost of debt × (1 − tax rate).
$$WACC = \dfrac{E}{V} \cdot R_e + \dfrac{D}{V} \cdot R_d \cdot (1 - t)$$$$V = E + D$$How to Use
- Enter the equity and debt market values.
- Enter the cost of equity, cost of debt and the tax rate.
- Read the WACC.
FAQ
Why multiply the cost of debt by (1 − tax rate)?
Because the interest a company pays is usually tax-deductible, reducing its tax bill—this is the 'tax shield'. Example: borrowing at 5% with a 16.5% tax rate, every 5% of interest 'saves' 5% × 16.5% ≈ 0.825% in tax, so the real after-tax cost is only 5% × (1 − 16.5%) ≈ 4.18%. WACC reflects the actual financing cost the company bears, so the debt term uses the after-tax cost; dividends are not tax-deductible, so the equity term has no such adjustment.
Is a lower WACC always better?
Generally, a lower WACC means lower financing cost, making projects easier to 'beat' the hurdle and giving a higher valuation at a lower discount rate, so a low WACC is usually good. But do not read the number alone: WACC may be low because of heavy borrowing (debt is cheaper than equity and has a tax shield), yet excessive leverage raises financial risk and can spell trouble once profits dip or rates rise. The optimal capital structure balances 'lowering WACC' against 'controlling financial risk', not blindly minimising WACC.
What is WACC mainly used for?
Three core uses: first, as the discount rate for DCF valuation, converting future cash flows to present value; second, as the 'minimum return hurdle' for new investment projects—a project is worth pursuing only if its expected return exceeds WACC; third, compared with ROIC—only when ROIC persistently exceeds WACC is the company truly creating shareholder value, otherwise even accounting profit is destroying value. WACC is the baseline for judging whether a company 'earns enough'.
How should the cost of equity (Re) be estimated?
The most common is the Capital Asset Pricing Model (CAPM): Re = risk-free rate + Beta × (market expected return − risk-free rate). The risk-free rate in Hong Kong often references HKD government bonds or US Treasury yields; Beta reflects a stock's volatility versus the market; the market risk premium is the extra return investors demand over the risk-free asset. Since Re is fairly subjective (Beta and the premium must be estimated), it is often the largest source of error in WACC—run sensitivity analysis with different Betas and premiums to see the reasonable range of WACC.
Should I use book value or market value for the weights of E and D?
In theory, use market value. Equity market value E is share price × shares outstanding, reflecting the market's live pricing of equity; debt market value D is the current-rate discounting of outstanding debt. Market value reflects the company's true current capital structure and financing cost, while book value (historical cost) may diverge from reality, especially when the share price deviates far from book. In practice, small or private firms that cannot easily get debt market value may approximate with book value, but equity should still use market value where possible. Also, the capital structure changes with share price, debt and rates, so WACC is not fixed and should be re-estimated periodically.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.