Investing
Weighted average cost of capital
The blended hurdle rate for capital as a whole.
The Formula
WACC = (E / V) x Re + (D / V) x Rd x (1 - T)
The blended hurdle rate for capital as a whole.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| WACC | Blended cost | fraction per year | The average rate paid across all capital. |
| Re | Cost of equity | fraction per year | The return shareholders require. |
| Rd | Cost of debt | fraction per year | The pre tax rate on borrowings. |
What Each Symbol Means
WACCfraction per year
Blended cost
The average rate paid across all capital.
Refraction per year
Cost of equity
The return shareholders require.
Rdfraction per year
Cost of debt
The pre tax rate on borrowings.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate weighted average cost of capital page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Weighted Average Cost Of Capital, filed under Finance. Every number the guide produces comes from substituting into this one line.