Weighted Average Cost of Capital (WACC) Calculator
The WACC Calculator is a crucial tool for corporate finance professionals to determine the average rate of return a company is expected to pay its security holders. It helps in evaluating the cost-effectiveness of potential investments.
WACC Calculator
Results
Data Source and Methodology
All calculations are based on the formulas and data provided by authoritative financial sources. Investopedia, 2023.
Tutti i calcoli si basano rigorosamente sulle formule e sui dati forniti da questa fonte.
The Formula Explained
WACC Formula: \( WACC = \frac{E}{V} \times Re + \frac{D}{V} \times Rd \times (1 - Tc) \)
Glossary of Variables
- E: Market value of equity
- D: Market value of debt
- V: Total market value (E + D)
- Re: Cost of equity
- Rd: Cost of debt
- Tc: Corporate tax rate
How It Works: A Step-by-Step Example
For example, if a company has a cost of equity of 8%, cost of debt of 5%, a tax rate of 21%, and the market values of equity and debt are 60% and 40% respectively, the WACC would be calculated as follows: \( WACC = 0.6 \times 0.08 + 0.4 \times 0.05 \times (1 - 0.21) \).
Frequently Asked Questions (FAQ)
What is WACC?
WACC is the weighted average rate that a company expects to pay to finance its assets.
Why is WACC important?
It is used in financial modeling as a hurdle rate for investment decisions.
How do you calculate WACC?
It is calculated using the formula: \( WACC = \frac{E}{V} \times Re + \frac{D}{V} \times Rd \times (1 - Tc) \).
What is the cost of equity?
The return that equity investors require on their investment in the firm.
What is the cost of debt?
The effective rate that a company pays on its borrowed funds.