Question 1

What is WACC and why is it important?

Accepted Answer

WACC (Weighted Average Cost of Capital) represents the average rate a company must pay to finance its assets. It's crucial for DCF valuation, capital budgeting decisions, and assessing whether investments will generate returns above the cost of capital.

Question 2

How do I calculate cost of equity?

Accepted Answer

Cost of equity is calculated using the CAPM formula: Risk-Free Rate + (Beta × Market Risk Premium). We automatically fetch the 10-year Treasury rate from FRED API, use company beta from financial data, and apply the current market risk premium (typically 4-6%).

Question 3

Where do you get the risk-free rate from?

Accepted Answer

We fetch the 10-year Treasury Constant Maturity Rate directly from the Federal Reserve Economic Data (FRED) API. This is updated daily and represents the most widely accepted risk-free rate for US equity valuation.

Question 4

How is the cost of debt calculated?

Accepted Answer

Pre-tax cost of debt is estimated by adding a credit spread to the risk-free rate. The credit spread is based on the company's interest coverage ratio, which maps to a synthetic credit rating (AAA to D). The after-tax cost of debt accounts for the tax shield benefit.

Question 5

Can I manually adjust the WACC inputs?

Accepted Answer

Yes! While we auto-populate all inputs with company data and market rates, you can manually adjust any parameter including beta, tax rate, risk-free rate, and market risk premium to perform sensitivity analysis or use your own estimates.

WACC Calculator & Cost of Capital Analysis

WACC Calculator

WACC Calculator & Cost of Capital Analysis

WACC Calculator