That's WACC!

How do I calculate WACC? Recall that the formula for the Weighted Average Cost of Capital (WACC) is:

WACC = r_D (1- T_c )*( D / V )+ r_E *( E / V )

Where...

• r_D = The required return of the firm's Debt financing
  This should reflect the CURRENT MARKET rates the firm pays for debt. ThatsWACC.com calculates the cost of debt as the firm's total interest payments divided by the firm's average debt over the last year.
• (1-T_c) = The Tax adjustment for interest expense
  Interest paid on debt reduces Net Income, and therefore reduces tax payments for the firm. This value of this 'interest tax shield' depends on the firm's tax rate. We calculate the tax rate as the firm's total Taxes divided by pre-Tax income for the last 3 years.
• (D/V) = (Debt/Total Value)
  The % of the firm's value that is comprised of debt.
• r_E= the firm's cost of equity
  The firm's cost of equity is best (or, at least, most easily) calculated using the CAPM (Capital Asset Pricing Model).
  Cost of Equity r_E = r_f + β(r_M - r_f)   where...
     r_f = the 'Risk Free' rate of return
     β = the firm's 'Beta'; the correlation between the firm's returns and the market
     r_M = the historical "Market" return
• (E/V) = (Equity/Total Value)
  The % of the firm's value that is comprised of Equity. This is based on the firm's intra-day market cap (stock price x shares outstanding).

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