Compute cost of equity with CAPM, weighted average cost of capital (WACC), after-tax cost of debt, and compare two capital structure scenarios — all in your browser, with no data sent anywhere.
Re = required return on equity, Rf = risk-free rate, β = stock beta, Rm = expected market return. The difference (Rm − Rf) is called the market risk premium.
E = market value of equity, D = market value of debt, V = E + D, Re = cost of equity (can be taken from the CAPM result in tab 1), Rd = pre-tax cost of debt, Tc = tax rate. The factor (1 − Tc) reflects the tax shield on interest.
Because interest generally reduces taxable income, the effective cost of debt is lower than its nominal rate.
Enter two different capital structures; the calculator computes each WACC and the difference. This is purely an arithmetic comparison of your inputs.
Cost of capital is the minimum rate of return a company must earn on its investments to avoid harming its capital providers. It consists of the cost of equity (the return demanded by shareholders) and the after-tax cost of debt, combined into WACC according to capital structure weights.
The CAPM formula: Re = Rf + beta x (Rm - Rf). Example: Rf 4 percent, beta 1.2, and Rm 10 percent give a market risk premium of 6 percent, so Re = 4 percent + 1.2 x 6 percent = 11.20 percent. The calculator above computes it automatically from those three inputs.
The WACC formula: (E/V) x Re + (D/V) x Rd x (1 - Tc). Example: equity 600 and debt 400 give weights of 60 percent and 40 percent; with Re 11.20 percent, Rd 8 percent, and tax 22 percent, WACC = 0.60 x 11.20 percent + 0.40 x 8 percent x 0.78 = 6.72 percent + 2.496 percent = 9.216 percent, rounded to 9.22 percent.
Because debt interest is generally deductible from taxable income, the effective cost of debt is lower than its nominal interest rate. Example: 8 percent interest with a 22 percent tax rate gives an after-tax cost of debt of 8 percent x 0.78 = 6.24 percent, with a tax shield of 1.76 percent.
No. This calculator is only an educational tool, not investment or financial advice. Results depend entirely on the assumptions and inputs you enter, and models like CAPM and WACC have limited assumptions. For real decisions, consult a professional financial advisor.
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