Weighted Average Cost of Capital (WACC): Definition, Formula, and How to Calculate It
WACC is the average rate that a company is expected to pay to finance its assets, weighted by capital structure.
Exact formula
Where Re = cost of equity, Rd = cost of debt, E = market value of equity, D = market value of debt, Tc = corporate tax rate.
Notes
- WACC is widely used as a discount rate in DCF models.
- Estimating Re often uses CAPM; Rd uses market yields adjusted for default risk.