Weighted Average Cost of Capital (WACC)

Last Updated: Jun 7, 2019

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Weighted Average Cost of Capital, often referred to as WACC, is a calculation of a company's cost of capital with each category of capital (i.e. debt and equity) proportionally weighted. A company with a higher proportion of equity to debt will have a higher WACC given that equity is more expensive than debt. WACC is often used as the rate when discounting cash flows. The equation is below.

WACC = ((E/V) x Re) + ((D/V) x Rd x (1-Tc))

Re = Cost of Equity
Rd = Cost of Debt
E = Market Value of Equity
D = Market Value of Debt
V = D + E (also referred to as Enterprise Value)
Tc = Corporate Tax Rate