How this number is made
WACC blends the return equity investors require with the interest rate on debt, after the tax savings of interest. The weights should be market values and should add to 100. This page does not force them to. The cost of equity is an input. The CAPM page is one way people invent it.
- Weights are percents of the firm’s financing, not percents of profit.
- The tax rate is the marginal rate that actually shields interest. Zero if the firm does not pay tax.
Formula
WACC = equity weight × cost of equity + debt weight × cost of debt × (1 − tax rate).
Worked example
With the figures already in the form, wacc is 8.42%.
Questions
What if the weights are not 100%?
The page still multiplies. Fix the weights. A missing slice means a missing cost.
Is book value the right weight?
Market value is the usual answer. Book value is what you have if the market value is unknown. Say which one you typed.