How Do You Calculate The Weighted Average Cost Of Capital (WACC)?
A firm’s WACC (Weighted Average Cost of Capital) reflects the average ‘cost’ for a firm to raise capital. The WACC is one of the most fundamental economic measures of a company, as all typical investment projects undertaken by the firm should earn a return AT LEAST as high as the firm’s WACC. Otherwise, the firm is destroying value. This eHow will summarize the WACC formula, and then step you through how to find all of the ‘component’ variables you will need to plug in the formula. If you want to skip the algebra, the website at http://thatswacc.com will calculate the WACC for you. The formula for WACC is: WACC = rD (1- Tc )*( D / V )+ rE *( E /V) where… rD = Cost of DEBT: D = Total Debt: E = Total Market Cap/Equity: V = Total firm value (D + E): Tc = The firm’s marginal Tax Rate: rE = Cost of Equity: Get the Firm’s INCOME STATEMENT Data: Find the firm’s income statement data online. One of the best sources is Yahoo finance. For example, IBM’s annual Income statement is available at
