Weighted average cost of capital (WACC) - calculator

WACC (weighted average cost of capital) is the discount rate used for FCFF (Free Cash Flow To Firm), weighted by the share of debt and equity in the company's capital structure. It answers the question of what is the minimum required rate of return at which it is profitable for the company to implement projects. The company's assets are financed by debt or equity. Wacc is the average cost of the company's capital, weighted respectively with the share of debt and equity in the company's capital structure. Weighted average cost of capital is the minimum required rate of return at which it pays off for a company to take part in new projects or make mergers and acquisitions.
WACC weighted average cost of capital, formula: $$ WACC=\frac{E}{V}\cdot R_e+ \frac{E}{V} \cdot R_d \cdot (1-T_c)$$ where:

\(R_e\) - cost of equity

\(R_e\) - cost of debt

E - market value of the firm’s equity

D - market value of the firm’s debt

V=E+D - total market value of the firm’s financing (equity and debt)

\(\frac{E}{V}\) - percentage of financing that is equity

\(\frac{D}{V}\) - percentage of financing that is debt

Tc - corporate tax rate

In the case of debt, there is the term "tax shield". Interest on debt is included in the company's operating expenses and reduces the tax base. Hence, the formula appears as: (1-Tc).