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# Weighted average cost of capital (WACC) - calculator

Thanks to the WACC calculator, we will calculate the average relative cost of capital employed in financing investments by the enterprise.
The weighted average cost of capital takes into account the diversification of the investment financing structure and the various costs of individual capital components, and indicates the average relative cost of the enterprise engaging a given capital.

## Weighted average cost of capital (WACC) - calculator

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Usefull information
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).

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