If you are deciding whether to invest in a project, acquire a business, or raise new financing, you need a reliable estimate of your cost of capital. Use the calculator below to estimate your weighted average cost of capital (WACC), including equity, debt, and optional preferred stock.
Cost of Capital (WACC) Calculator
Enter percentages as whole numbers (example: 8.5 for 8.5%). Use market values for equity and debt whenever possible.
What is cost of capital?
Cost of capital is the return investors require to provide funding to your company. It combines the expected return demanded by shareholders and lenders, weighted by how much of each financing source your firm uses. In practice, this benchmark is used as a hurdle rate: projects should generally earn more than the cost of capital to create value.
The WACC formula used in this calculator
This tool calculates the weighted average cost of capital using:
WACC = (E/V × Re) + (D/V × Rd × (1 − T)) + (P/V × Rp)
- E = market value of equity
- D = market value of debt
- P = market value of preferred stock (optional)
- V = E + D + P
- Re = cost of equity, estimated with CAPM
- Rd = pre-tax cost of debt
- T = corporate tax rate
- Rp = cost of preferred stock
The calculator estimates cost of equity using the CAPM equation: Re = Rf + β × (Rm − Rf).
How to use this cost of capital calculator
1) Enter market assumptions
Input the risk-free rate, beta, and expected market return. These values drive your equity cost estimate.
2) Enter debt assumptions
Provide your pre-tax borrowing rate and tax rate. The tax adjustment is important because interest is typically tax-deductible.
3) Enter capital structure
Add market values for equity and debt. If your company has preferred stock, include that too. The model will assign weights automatically.
4) Calculate and interpret
Click Calculate WACC to see your total cost of capital and a component-level breakdown.
Example interpretation
Suppose your calculated WACC is 8.4%. That means a proposed investment should generally earn more than 8.4% on a risk-adjusted basis to create shareholder value. If a project’s expected return is only 6%, it may destroy value unless strategic factors justify it.
Common mistakes to avoid
- Using book values instead of market values for capital weights.
- Forgetting the tax shield on debt.
- Using inconsistent time horizons in assumptions (short-term debt rate with long-term project cash flows).
- Applying one company-wide WACC to projects with very different risk profiles.
- Ignoring country risk or industry-specific risk adjustments when needed.
Ways businesses lower their cost of capital
- Improve operating consistency and reduce earnings volatility.
- Maintain prudent leverage and strong debt coverage ratios.
- Enhance disclosure quality and investor communication.
- Build a resilient competitive moat that lowers perceived business risk.
- Optimize financing mix over time as market conditions change.
Frequently asked questions
Is a lower WACC always better?
Usually yes, because it implies cheaper financing. But excessively low debt costs can encourage over-leverage, which increases financial risk.
Should startups use WACC?
Startups can use the framework, but assumptions are less stable. Early-stage firms often require additional risk premiums or scenario analysis.
How often should I update WACC?
At minimum, refresh quarterly or before major capital allocation decisions. Update immediately when interest rates or market risk conditions shift materially.
Final note
A good cost of capital estimate improves investment discipline and strategic planning. Use this calculator as a decision aid, then layer in judgment, sensitivity analysis, and project-specific risk adjustments before making final finance decisions.