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WACC & Cost of Equity Calculator
The discount rate is the most sensitive input in any DCF — a single percentage point can swing fair value by 20% or more. This calculator computes it properly: CAPM cost of equity first, then the full weighted average cost of capital, with real capital structure data auto-filled for 37,000+ stocks.
INTERACTIVE CALCULATOR
WACC & Cost of Equity Calculator
Build a discount rate in two steps: CAPM cost of equity first, then blend it with the after-tax cost of debt to get WACC.
SEARCH STOCK
Search to auto-fill the company's capital structure
Equity and debt auto-filled — beta must be entered manually (not available in our data feed).
STEP 1 · COST OF EQUITY (CAPM)
Find beta on any financial site; 1.0 = moves with the market
COST OF EQUITY (rₑ)
9.0%
STEP 2 · WACC
Roughly the yield on the company's bonds or interest expense ÷ total debt
Enter equity and debt (their total must be above zero) to calculate WACC
For educational purposes only. Not investment advice.
How to Use This Calculator
Start with Step 1 — Cost of Equity. Enter the risk-free rate (a long government bond yield), the stock's beta from any financial site, and an equity risk premium (typically 4-6%). The calculator applies the CAPM formula and shows the cost of equity immediately.
Then complete Step 2 — WACC. Search a stock above to auto-fill its market cap and total debt, or enter them manually in billions. Add the company's cost of debt (roughly its bond yield or interest expense ÷ total debt) and its tax rate. The split bar shows how the capital structure is weighted between equity and debt.
The result card shows both numbers side by side, and one click sends the WACC straight into our DCF calculator as the discount rate.
The Formulas
CAPM COST OF EQUITY
Cost of Equity = Risk-Free Rate + Beta × Equity Risk Premium
WACC
WACC = E/(E+D) × rₑ + D/(E+D) × r_d × (1 − Tax Rate)
The CAPM (capital asset pricing model) says shareholders demand the risk-free return plus extra compensation proportional to how much the stock amplifies market risk. A beta of 1.2 with a 4% risk-free rate and a 5% equity risk premium gives a 10% cost of equity: 4% + 1.2 × 5%.
WACC then blends the two funding sources. E is the market value of equity (market cap), D is total debt, rₑ is the cost of equity, and r_d is the cost of debt. Debt is multiplied by (1 − tax rate) because interest is tax-deductible, so its true cost to the company is lower than the stated rate.
Choosing the Inputs
Risk-free rate. Use a long government bond yield — the 10-year Treasury is the standard choice for US stocks. It should match the currency and horizon of the cash flows you are discounting.
Equity risk premium. The extra return stocks must offer over bonds. Estimates for the US typically fall between 4% and 6%; 5% is a sensible default. Using a premium far outside that range needs a good argument.
Beta. A measure of how much the stock moves with the market — 1.0 moves in line, above 1.0 amplifies swings, below 1.0 dampens them. Be aware of what beta actually captures: it measures past price volatility, not business risk. A stable company whose stock happens to trade erratically gets a high beta, and a genuinely risky company with a placid stock chart gets a low one. Many value investors treat CAPM as a starting point and adjust judgmentally.
Cost of debt. Ideally the yield to maturity on the company's traded bonds. A quick approximation is annual interest expense divided by total debt, both from the latest annual report. Investment-grade companies typically borrow at 1-2 points above the risk-free rate; riskier credits pay more.
How the Discount Rate Moves Fair Value
No other DCF input matters as much. Take a company producing $10 of free cash flow per share, growing 8% for a decade and 2.5% after that: discounted at 8%, it is worth roughly twice as much as the same cash flows discounted at 12%. Growth assumptions grab the attention, but the discount rate quietly does more of the work.
That sensitivity cuts both ways. A demanding discount rate is itself a margin of safety: if a stock still looks cheap when you discount its cash flows at 11-12%, you are being paid to accept uncertainty. If it only looks cheap at 7%, the "undervaluation" is mostly an artifact of a generous assumption.
Frequently Asked Questions
What is WACC?
WACC (weighted average cost of capital) is the blended return a company must earn to satisfy everyone who finances it — shareholders and lenders. It weights the cost of equity by the equity share of the capital structure and the after-tax cost of debt by the debt share. In valuation, WACC is the standard discount rate for a company's free cash flows: projects and businesses only create value when they earn more than their WACC.
What discount rate should I use in a DCF?
The textbook answer is the company's WACC — that is exactly what this calculator produces. In practice, many investors use a simpler required rate of return, often 8-12%, reflecting what they personally demand from a stock. Both approaches are defensible; what matters is consistency. If your rate is below roughly 6-7%, almost everything looks cheap, which usually signals the rate is too low rather than the market being full of bargains.
Where do I find a stock's beta?
Beta is published for free on most major financial sites — Yahoo Finance, Google Finance, and most broker platforms list it on each stock's summary or statistics page. It is typically calculated from five years of monthly returns against the S&P 500. Values differ slightly between sources because of different lookback windows, so treat beta as an estimate, not a precise constant.
Why does WACC use the after-tax cost of debt?
Interest payments are tax-deductible in most jurisdictions, so debt effectively costs less than its stated rate. If a company pays 5% interest and faces a 21% tax rate, each dollar of interest reduces taxes by 21 cents, making the true cost 5% × (1 − 0.21) = 3.95%. WACC uses this after-tax figure because free cash flow models already reflect the taxes the company actually pays.
What is a reasonable equity risk premium?
The equity risk premium — the extra return investors demand for holding stocks instead of government bonds — is typically estimated at 4-6% for the US market. Long-run historical averages sit near 5%, and forward-looking estimates published by academics such as Aswath Damodaran usually fall in the same range. Emerging markets warrant a higher premium; very stable developed markets can justify the lower end.
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This calculator is for educational purposes only and does not constitute investment advice. WACC and cost of equity figures are model outputs based on assumptions — including auto-filled capital structure data — and should not be used as the sole basis for investment decisions.