WACC calculator

What WACC actually means

WACC is a company's blended cost of capital: the return its investors — equity holders and lenders together — require, weighted by how much of the capital structure each group funds. Equity holders demand the cost of equity (R_e, usually from CAPM); lenders demand the cost of debt (R_d), which gets multiplied by (1 − tax rate) because interest is tax-deductible. In a DCF, WACC is the discount rate applied to unlevered free cash flows — a higher WACC means a lower present value.

How to use this in an interview

• Say the formula first, then the inputs. “WACC is E over V times cost of equity, plus D over V times cost of debt, times one minus the tax rate” — then explain where each piece comes from (CAPM for equity, yield on debt for R_d, market values for the weights).
• Use market values, not book values, for the weights — a classic follow-up is “why market values?” (they reflect what investors would actually pay for those claims today).
• Know the levers: more debt initially lowers WACC (debt is cheaper and tax-shielded), but past a point rising distress risk pushes both R_d and R_e up.
• Common follow-ups: How does WACC change if rates rise? Why is the cost of equity higher than the cost of debt? What WACC would you use for a private company (re-lever a peer beta)?