How to Calculate WACC in Excel (Formula, Example & Template)

WACC (weighted average cost of capital) is the average rate a company pays for its capital, weighted by how much of that capital comes from equity and how much comes from debt.

Excel has no built-in WACC function, but you only need one formula:

WACC = E/V × Re + D/V × Rd × (1 – T)

The quick version:

1. Enter the market value of equity (E) and debt (D), and add them up to get total capital (V).
2. Enter the cost of equity (Re), the pre-tax cost of debt (Rd) and the tax rate (T) as percentages.
3. Calculate the after-tax cost of debt with =Rd*(1-T).
4. Multiply each weight by its cost and add the results. In one cell: =E/V*Re+D/V*Rd*(1-T), using your own cell references.

Example: with $3,500 of equity at 12%, $6,200 of debt at 8% and a 10% tax rate (hypothetical numbers), the WACC is 8.93%.

Here’s your practice workbook for this guide. Download it and follow along, then reuse it as your own WACC calculator template 👨‍🏫

Table of Contents

What is WACC

WACC stands for Weighted Average Cost of Capital.

A company funds itself with two main sources of capital:

• Equity: money from the owners or shareholders, in exchange for shares.
• Debt: money borrowed from banks, bondholders or other lenders.

Both have a cost. Shareholders expect a return (the Cost of Equity, Ke), and lenders charge interest (the Cost of Debt, Kd) 💰

WACC averages those two costs, weighted by how big a share each source is of the company’s total capital.

That’s why businesses use WACC as the discount rate in cash flow valuations, and as the minimum return a new project must beat before it’s worth doing.

WACC formula

The basic formula for WACC is:

A closer look into the formula reveals that we are multiplying

• the cost of equity by equity’s portion of the total capital; and
• the cost of debt by debt’s portion of the total capital.

And then adding them up.

That’s the basic formula. In practice, you always add one more component to it, the tax rate:

The only addition is (1 – Tax %) on the debt part, because interest is tax deductible. I explain why in the section below.

In finance textbooks, you’ll usually see the same formula written with letters:

WACC = (E/V × Re) + (D/V × Rd × (1 – T))

• E = market value of equity
• D = market value of debt
• V = E + D (total capital)
• Re = cost of equity
• Rd = pre-tax cost of debt
• T = corporate tax rate

If the company also has preferred stock, add a third term: P/V × Rp. P is the value of the preferred stock, Rp is its cost (usually the preferred dividend yield), and V becomes E + D + P. There’s no tax adjustment on preferred stock, because preferred dividends are paid out of after-tax profit.

Components of WACC

From the formula above, we know that WACC has the following components.

Equity

Equity represents the capital provided by the owners of the business. For example, say your business has total capital of $1,000 million (a hypothetical number).

If $400 million of that comes from the owners, your equity portion is:

The owners share in the profits of the business (as dividends). They also enjoy the capital appreciation of the business: as it grows, the value of their shares increases 📈

Debt

Debt is the money lent to the business by external lenders. Most of the time, that’s a bank. Other times, it’s bondholders or anyone else who lends money for a fixed return (interest) and gets the loan repaid after a certain period.

In the same example, if $600 million of the $1,000 million is borrowed, your debt portion is:

Cost of Debt

The cost of debt is what you pay on your debt. In the simplest case, that’s the interest rate agreed with the lender. Interest is paid periodically depending on the agreement (annually, semi-annually, quarterly or even monthly).

For example, your bank lends you $600 million at a fixed interest rate of 10% per year. So, you pay 10% of $600 million (that’s $60 million) every year.

Your Cost of Debt is 10% per year.

In a real valuation, the cost of debt is usually estimated as the yield to maturity on the company’s existing debt (the return lenders would demand today), rather than the rate agreed years ago.

Tax Rate

Delving a little deeper into finance (and a little into taxes too), interest expense is tax deductible in most tax systems.

This means tax authorities accept interest as an expense, so companies can deduct it from the profit that’s subject to tax.

Pro Tip!

Say a company has a profit of $300 million before interest and tax, pays $60 million in interest, and the tax rate is 10% (all hypothetical numbers).

Without the interest deduction, it would pay tax on $300 million: $300 million × 10% = $30 million.

But tax laws normally let it deduct the interest first. So it pays tax on $240 million ($300 million less $60 million of interest): $240 million × 10% = $24 million.

That’s $6 million of tax saved because of the interest expense.

So while we paid $60 million in interest, we also saved $6 million in tax. The net cost is $54 million, which is 9% of the $600 million loan.

That’s why the after-tax cost of debt is 10% × (1 – 10%) = 9% 💡

Cost of Equity

Then there’s the cost of equity (Ke, also written Re): the return shareholders expect, through dividends and growth in the share price.

It’s usually estimated with the CAPM (Capital Asset Pricing Model):

Ke = Rf + β × (Rm – Rf)

• Rf = the risk-free rate (often the yield on a 10-year government bond)
• β (beta) = how much the stock moves relative to the market
• Rm = the expected return of the market. (Rm – Rf) is called the market risk premium or equity risk premium.

In Excel, with the risk-free rate in B1, beta in B2 and the market return in B3, the formula is:

The brackets matter, because Excel multiplies before it adds and subtracts. With hypothetical inputs of 3% (risk-free rate), 1.5 (beta) and 9% (market return), it returns 12%. That’s the cost of equity used in the example below.

If you need to calculate beta yourself, the SLOPE function can do it from historical returns: =SLOPE(stock_returns, market_returns).

Pro tip

The cost of equity is not tax deductible. Tax authorities do not allow dividends as an expense, so we do not take any tax rate adjustment on the Cost of Equity.

Calculating WACC in Excel

Calculating WACC is no big deal in Excel. Let me show you how to do it in under 2 minutes ⏱

Here’s the capital structure of a hypothetical Company ABC, with its equity, debt, Cost of Equity, Cost of Debt and tax rate.

Step 1) Put each amount of capital next to its cost and tax rate.

No tax adjustment applies to equity, so the tax rate for equity is left empty (shown as a dash).

The pre-tax cost of debt is 8%, with a 10% tax rate.

Step 2) In E2, calculate the post-tax cost of equity by applying the tax rate to the cost of capital:

Step 3) Copy the formula down to E3 to get the post-tax cost of debt: 8% × (1 – 10%) = 7.2%.

Step 4) Multiply the amount of equity by its post-tax cost:

Step 5) Next, multiply the amount of debt by its post-tax cost:

Nice.

Step 6) Now add up the costs with the SUM function:

Step 7) To find the WACC, divide the total cost by the total capital:

There it is: 8.93% ✌

This means the company pays 8.93% per year for its capital, on average.

Method 2: weight each cost by its share of capital

If you’d rather follow the WACC formula directly, here’s how.

Step 1) Find the proportion of equity and debt in the total capital:

Copy it down to C3. The dollar signs lock the reference to the total in B4, so both rows divide by the same total. That shows this capital structure runs on 36% equity and 64% debt.

Then calculate the post-tax cost of each source in column F, just like in the first method:

Step 2) Multiply each proportion by its post-tax cost:

Step 3) Add up the two results:

There you go! We get a WACC of 8.93% again.

Both methods are mathematically the same, so use whichever you find easier ✔

One-cell WACC formula (and SUMPRODUCT)

Don’t need the helper columns? You can calculate WACC in a single cell.

Using the input table from the first screenshot (equity in B4, debt in B5, total capital in B6, Cost of Equity in B8, Cost of Debt in B9 and tax rate in B10):

It returns 8.93%, the same as above.

In the Method 2 table, SUMPRODUCT multiplies the proportions by the post-tax costs and adds them up in one go:

These formulas work the same way in Excel for Microsoft 365, Excel 2024, Excel for Mac and Excel for the web.

Where to find the inputs for WACC

The Excel part is easy. Getting good inputs is where the real work is:

• Market value of equity (E): for a listed company, shares outstanding × the current share price.
• Value of debt (D): interest-bearing debt such as loans and bonds. The balance sheet (book) value is a common stand-in for market value, unless the debt trades or interest rates have moved a lot since it was issued. Leave out non-interest-bearing items like accounts payable.
• Cost of debt (Rd): ideally the yield to maturity on the company’s debt, or the rate it would pay on a new loan today. Interest expense ÷ total debt is a rough shortcut.
• Tax rate (T): ideally the marginal tax rate. If you only have the income statement, the effective rate is income tax expense ÷ pre-tax income.
• Cost of equity (Re): use CAPM, as shown above.

How to interpret WACC

WACC is one of the most important financial metrics when a business makes investment decisions and evaluates new projects. It tells them the minimum expected return they should seek on their investments.

It’s the cost they are bearing, so it sets the return they need to be in profit 🤔

For example, if your business has a WACC of 8.93%, you need projects that offer at least an 8.93% return.

If you come across a project that offers, say, 6% per year, your WACC tells you not to invest in it. The money you’d put into it costs you 8.93%, but you only make 6% on it.

Clearly a loss.

Pro Tip!

The lower the WACC, the better.

A smaller WACC percentage means you have access to cheaper capital. That gives you more room to invest in the projects that come your way (even those with lower returns).

In the example above, you could have invested in the 6% project if your WACC was 5% (making a 1% profit). But a higher WACC (8.93%) means you have to pass on more of the investment opportunities around you 🎯

Common WACC mistakes in Excel

• Applying the tax adjustment to equity. Only debt gets the (1 – T) adjustment.
• Applying the tax adjustment twice. If your cost of debt cell is already after tax, don’t multiply by (1 – T) again in the WACC formula.
• Missing brackets in CAPM. =B1+B2*B3-B1 is not the same as =B1+B2*(B3-B1).
• Typing 12 instead of 12%. Enter rates as percentages (12%) or decimals (0.12), or your WACC will be 100 times too big.
• Weights that don’t add up to 100%. E/V and D/V should always sum to 100%, so use the same total in both.
• Using book equity for a listed company instead of its market value.

Conclusion

That’s everything you need to calculate WACC in Excel: the concept behind it, the formula, and three ways to calculate it. Wooho! You’re a finance wizard by now 🎓

The natural next step is to use your WACC as the discount rate when you calculate the NPV of a project’s cash flows.

Read my blog on how to calculate NPV in Excel here.

I also suggest you read my blog on calculating IRR in Excel. All these concepts are intertwined, and the more you study them, the better you’ll understand how financial analysis in Excel works.

FAQ

Is there a WACC function in Excel?

No. Excel has no built-in WACC function. You build it with simple arithmetic, like =E/V*Re+D/V*Rd*(1-T), or with SUMPRODUCT if you have the weights and the after-tax costs in two columns.

How do you calculate the after-tax cost of debt in Excel?

Multiply the pre-tax cost of debt by 1 minus the tax rate: =Rd*(1-T). For example, =8%*(1-10%) returns 7.2%.

How do you calculate the cost of equity for WACC in Excel?

Use CAPM: risk-free rate + beta × (market return – risk-free rate). With the inputs in B1, B2 and B3, the formula is =B1+B2*(B3-B1).

Can I calculate WACC from the balance sheet?

Partly. The balance sheet gives you the debt and the book value of equity, so you can get a rough WACC from it. For a listed company, replace book equity with the market value (shares × share price), because the two can be very different.