## 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 the sum of the cost of debt, the cost of equity, and the preferred stock values of the corporation. There are two main sources of raising capital equity and debt.

## 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.

## 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 a 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 the corporate tax rate is 25%.

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

### Step 1

So, first is to put all the desired data into the following given format 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 the weightage of both equity and debt values. Hence, the following image is showing the calculation of the weightage of both stocks.

### Step 3

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

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 the WACC calculator in Excel sheet by clicking on the button or using calculator online.

### CAPM Calculator | Capital Asset Pricing Model

I Capital Asset Pricing Model (CAPM) is a financial analysis tool that assists investors to measure the expected rate of return on investment carried out on its risk level.

## CAPM Calculator

Instructions: Use this calculator to find out the CAPM (Capital Asset Pricing Model) of a company. Please input the Risk-free rate (%), Expected return of the market (%), and Beta for Stock in the form below:

## CAPM Formula

CAPM = Risk-free Rate + β x (Market Return – Risk-free Rate)

Where:

Risk-free Rate = A rate of return on government risk-free investment

Market Return = An expected rate of return based on market

Beta or β = Market risk sensitivity

Must read: A complete guide on how to calculate CAPM in excel

### Weighted Average Cost of Capital WACC Calculator (Excel)

I Instructions: Use this WACC calculator to find out the weighted average cost of capital of a company. Please input the value in total debt value, cost of debt (%), corporate tax rate (%), total equity value, and cost of equity (%) in the form below: