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WACC formula in Excel

How to Calclulate WACC in Excel


The formula for calculating WACC in Excel is as follows:


=Wd*(1-Tc)Rd + WeRe


Where:

  • Wd: Weight of Debt

  • Tc: Corporate Tax Rate

  • Rd: Cost of Debt

  • We: Weight of Equity

  • Re: Cost of Equity

To calculate the weights of debt and equity, use the following formulas:

  • Wd = D / (D + E)

  • We = E / (D + E)

Where:

  • D: Market value of Debt

  • E: Market value of Equity

You can also use the built-in function in Excel for calculating WACC, which is as follows:


=WACC(E, Re, D, Rd, Tc)


Where:

  • E: Market value of Equity

  • Re: Cost of Equity

  • D: Market value of Debt

  • Rd: Cost of Debt

  • Tc: Corporate Tax Rate

Note that the order of the inputs may vary depending on the version of Excel you are using.


What is Weighted Average Cost of Capital(WACC)?


In simple terms, it means that a company needs to make enough money from its investments to pay back the people who have invested in the company (like shareholders and bondholders).


WACC is calculated by looking at how much money a company has borrowed (debt) and how much money it has raised by selling shares (equity). The cost of debt and equity are then weighted by their proportions in the company's capital structure. The result is a single number that represents the minimum return the company must earn to satisfy its investors and creditors.


In practice, WACC is used by companies to help them make decisions about which investment projects are worth pursuing. If a project is expected to earn less than the WACC, it may not be worth pursuing because it won't be able to generate enough return to satisfy the investors and creditors.

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