Weighted Average Cost of Capital (WACC) Calculator
The Weighted Average Cost of Capital (WACC) calculates a company’s blended cost of capital across all funding sources—equity and debt—weighted by their market value proportions.
Sensitivity Analysis
Evaluate how variations in key operational drivers impact WACC (%).
| Sensitivity Case | Assumption Shift | Driver Value | WACC (%) | Impact vs Base |
|---|
Formula & Methodology
WACC (%) = (Equity Weight * Cost of Equity) + (Debt Weight * Pre-Tax Cost of Debt * (1 - Tax Rate))EMarket Capitalization (Shares × Share Price).
DTotal outstanding interest-bearing debt.
r_eRequired return on equity (from CAPM).
r_dEffective interest rate on debt.
TTax rate providing debt interest tax shields.
Practical Worked Example
A company is funded with Rs 70 Cr equity (12% cost of equity) and Rs 30 Cr debt (8% interest, 25% tax rate).
Interpretation & Industry Benchmarks
WACC serves as the minimum rate of return a company must earn on its existing asset base.
Healthy balance of equity and debt funding.
Industry Nuance: High-leverage firms face rising cost of debt and financial distress risk.
Analytical Limitations
- Debt interest tax shields only apply if the company generates positive taxable income.
Frequently Asked Questions
Why is WACC used in DCF models?
Because DCF projects cash flows available to both debt and equity holders, requiring a blended discount rate representing both capital providers.