WACC Calculator

WACC Defination and Formula

WACC stands for how much it costs a company to use money from different sources, such as loans, shares, or bonds.It is important for a company to know its WACC because it helps them decide whether to invest in new projects or not. Here is a simple explanation of WACC in five lines:

{via- CFI}

• WACC stands for Weighted Average Cost of Capital.
• Weighted means that each source of money has a different percentage in the total amount.
• Average means that we add up the costs of each source and divide by the total amount.
• Cost means how much interest or dividend the company has to pay to use the money.
• Capital means the money that the company uses to run its business and grow.

WACC Formula and Calculation:

For Determining Wacc You need to understand the chart below

{via- CFI}

The WACC Equation is a relatively straightforward calculation, requiring a few key inputs:

WACC = (E/E+D) * Re + (D/E+D) * Rd * (1 – Tc)                       

Where:

E = Market value of equity
D = Market value of debt
Re = Cost of equity
Rd = Cost of debt
Tc = Corporate tax rate

For example, suppose a company has two sources of money: a loan of $100 with 10% interest and shares worth $200 with 5% dividend. The total amount of money is $300. The percentage of loan is 100/300 = 33.33% and the percentage of shares is 200/300 = 66.67%. The cost of loan is 10% and the cost of shares is 5%. The company also pays 20% tax on its income.

To calculate WACC, we use this formula:

WACC = (Percentage of Loan x Cost of Loan x (1 – Tax Rate)) + (Percentage of Shares x Cost of Shares)

WACC = (0.3333 x 0.1 x (1 – 0.2)) + (0.6667 x 0.05)

WACC = 0.0267 + 0.0333

WACC = 0.06