Published 2025-10-17 · Last updated 2026-01-07 · Reviewed by Valzura Editorial Team
WACC Calculator
Find the blended rate a buyer or lender uses to discount your future cash flows.
The weighted average cost of capital (WACC) is the blended rate a company pays to finance its assets, weighting the cost of equity and the after-tax cost of debt by their share of the capital structure. The formula is WACC = (E divided by V) times the cost of equity, plus (D divided by V) times the cost of debt times (1 minus the tax rate), where E is equity value, D is debt value, and V is their total. A lower WACC raises the present value of future cash flows and therefore the value of the business.
Market value of equity, or the sale price of the stock.
Total interest-bearing debt.
Required return for shareholders (often 15 to 30% for small firms).
Interest rate on the company's debt.
Corporate tax rate applied to the debt tax shield.
Enter an equity or debt value to calculate your WACC.
The WACC formula, broken down
Here E is the market value of equity, D is the market value of debt, and V is their sum. Re is the cost of equity, Rd is the cost of debt, and Tc is the corporate tax rate. The equity and debt weights (E divided by V and D divided by V) determine how much each source of capital contributes to the blended rate. Because interest is tax deductible, only the cost of debt is multiplied by one minus the tax rate.
Why WACC drives your business value
WACC is the discount rate in a discounted cash flow valuation. Every dollar of future cash flow is worth less today, and WACC sets how much less. A business with a 15 percent WACC is worth meaningfully more than an identical business at 25 percent, because its future earnings are discounted less severely. That is why reducing owner dependence, diversifying customers, and building recurring revenue, all of which lower risk, translate directly into a higher valuation.
Small businesses almost always carry a higher WACC than large public companies. Limited liquidity, key-person risk, and concentrated customer bases add a company-specific risk premium that can push the rate into the twenties. Our free valuation calculator derives a discount rate from these exact risk factors when it runs a discounted cash flow estimate for your business.
Estimating the cost of equity
The trickiest input is the cost of equity. Analysts usually start with the Capital Asset Pricing Model, which sets the cost of equity equal to the risk-free rate plus beta times the equity risk premium. For a private company, they then layer on a size premium and a company-specific premium. If you are not sure where to start, a range of 18 to 28 percent is common for small, owner-operated businesses. Explore the underlying valuation methods guide to see how the discount rate fits alongside multiples and asset-based approaches.
Frequently Asked Questions
What is a good WACC for a small business?
Most small and lower-middle-market businesses carry a WACC between 12 and 30 percent. Smaller companies sit at the higher end because they carry more owner dependence, customer concentration, and liquidity risk than large public firms, which often fall between 6 and 10 percent. A lower WACC signals lower perceived risk and supports a higher valuation.
How do you calculate the cost of equity for WACC?
The cost of equity is most often estimated with the Capital Asset Pricing Model: cost of equity equals the risk-free rate plus beta times the equity risk premium. For a private small business, analysts add a size premium and a company-specific risk premium on top, which is why private cost of equity commonly lands between 15 and 30 percent.
Why does WACC use the after-tax cost of debt?
Interest expense is tax deductible, so the true economic cost of debt to the business is reduced by its tax rate. Multiplying the cost of debt by (1 minus the tax rate) captures this tax shield. Equity has no equivalent deduction, so the cost of equity is not tax adjusted.
Is WACC the same as the discount rate?
In a discounted cash flow valuation of the whole business, WACC is the discount rate applied to unlevered free cash flow because those cash flows belong to both debt and equity holders. When you discount cash flows that belong to equity holders only, you use the cost of equity instead.
Related Free Tools
Keep building your financial picture with these related calculators, or browse every free tool.
Enterprise Value Calculator
Convert equity value into enterprise value by adding debt and subtracting cash.
EBITDA Calculator
Calculate EBITDA and EBITDA margin, the earnings figure buyers multiply to value your company.
Profit Margin Calculator
Find net and operating profit margins from your revenue and cost figures.
What Is Your Business Worth?
WACC is the discount rate behind every discounted cash flow valuation. See what it produces for your business.
Value My Business Free