**Weighted Average Cost of Capital – WACC Definition**

A cost of capital must need to pay against corporate financing recognized weighted average cost of capital. Hence, WACC or Weighted Average Cost of Capital is a **sum of all capital sources comprising debt, bonds, equity stocks, and preferred stocks**.

Furthermore, it is sum of cost of debt, cost of equity, and preferred stock values of corporation. There are two main sources of raising capital equity and debt.

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**Cost of Equity** (Ke)

The cost of equity is a calculation of common stock to measure the proportion of equity shareholders’ investment in a project. Moreover, the cost of equity is the required rate of return on equity investment in the project.

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**Cost of Debt** (Kd)

The cost of debt is the required rate of return on debt stock investment by the lenders.

**What Weighted Average Cost of Capital Formula**

Firstly and most essentially, we need to understand the theoretical formula of WACC which is calculated as follows:

Where;

**E **= Equity market value

**D **= Debt market value

**Re **= cost of equity

**Rd **= cost of debt

**t **= corporate taxation rate

**E / (E+D)**= Weightage of equity value

**D / (E+D)**= Weightage of debt value

**How to Calculate WACC in Excel**

Now, It will show you how to extract WACC value by using an Excel-based Calculator. For example, LuluLemon has stock value comprised of both debt and equity capital. Thus, the total debt value is $1,000,000 acquired at a rate of 7% and $2,500,000 as equity value at the rate of 4%, while corporate tax rate is 25%.

Let’s, divide the above solution into **three simple steps **to understand it more precise and effectively.

### Step 1

So, first is to put all the desire data into the following given format such as **total debt value, cost of debt (%), tax rate (%), total equity value, and cost of equity (%)**.

### Step 2

Now, we need to calculate the **total value of capital (debt+equity), and weightage of both equity and debt values**. Hence, the following image is showing calculation of weightage of both stocks.

### Step 3

In the last and most importantly, we need to use the **WACC formula** **excel **as shown in the following image.

=((E14*E22)+(E8*E20)*(1-E10)) |

Where,

**E14 **= Cost of Equity (%)

**E22 **= Weightage of Equity

**E8 ** = Cost of Debt (%)

**E20 **= Weightage of Debt

**E10 **= Tax Rate (%)

## WACC Calculation Excel Template

Also, you can download the template of WACC calculator in Excel sheet by clicking on the button or use calculator online.

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