Cost of Capital Calculator

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Cost of capital

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What is Cost of Capital?

This page performs one simple operation: it adds the entered cost-of-debt percentage to the entered cost-of-equity percentage. The result can be useful when an exercise explicitly asks for that sum, but it is not the standard weighted average cost of capital (WACC).

A company’s financing cost normally depends on how much capital comes from debt and equity, and debt may be adjusted for tax. Because this form asks for neither capital weights nor a tax rate, its displayed “cost of capital” should not be used as a financing discount rate or presented as WACC.

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How to Use This Calculator

  1. Enter the debt-cost rate as a percentage number, such as 6 for 6%.
  2. Enter the equity-cost rate on the same percentage scale, such as 10 for 10%.
  3. Select Calculate. The page adds the two numbers and appends a percent sign.

Both inputs should describe the same period, usually annual rates. The calculator does not estimate either component from borrowing terms, beta, a risk-free rate, or market data. It also performs no weighting, tax adjustment, compounding conversion, or validation of plausible ranges. Treat the output as an arithmetic sum with a clear label.

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Formula Used

Formula implemented here: displayed sum (%) = cost of debt (%) + cost of equity (%).

For comparison, a common after-tax WACC form is WACC = [E/(D + E) × Ke] + [D/(D + E) × Kd × (1 − T)], where E and D are market values, Ke and Kd are component costs, and T is the applicable tax rate. The current page does not request E, D, or T and therefore cannot calculate that expression.

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Variables Explained

Input or termMeaning
Cost of debtThe entered borrowing-rate estimate, expressed in percentage points.
Cost of equityThe entered required equity-return estimate, expressed in percentage points.
Displayed sumThe arithmetic addition of the two inputs; it is not weighted.
D and EDebt and equity market values needed for standard capital weights; absent from this form.
TTax rate sometimes used for the debt tax shield in WACC; absent from this form.
WACCWeighted average of financing-component costs, a different calculation from this page.
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Worked Example

Enter a debt cost of 6% and an equity cost of 10%. The page calculates 6 + 10 = 16 and displays 16%. That is the exact behavior of this calculator.

It should not be interpreted as a 16% WACC. Suppose, only for comparison, that debt represents 40% of capital, equity represents 60%, and the tax rate is 25%. A conventional after-tax WACC would be 0.60 × 10% + 0.40 × 6% × (1 − 0.25) = 6% + 1.8% = 7.8%. The large difference shows why weights and tax treatment cannot be omitted when WACC is intended.

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Why Use This Calculator?

The output tells you only the sum of the two rates supplied. A larger sum means the entered component rates add to a larger number; it does not, by itself, mean the firm’s blended financing cost is that number. Do not compare projects to this output as a hurdle rate unless a specified method explicitly defines the sum that way.

Real estimates require choices about market-value capital structure, marginal borrowing cost, equity-return model, taxes, currency, term, and risk. Those assumptions can materially affect a valuation. For investment or corporate-finance decisions, use an appropriate model and have the assumptions reviewed.

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Common Mistakes

    • Calling the result WACC even though the form has no debt or equity weights.
    • Adding rates measured over different periods or in different currencies.
    • Entering 0.06 for 6%; the form displays the raw sum as a percent, so enter 6.
    • Using historical interest expense automatically as the forward-looking cost of debt.
    • Ignoring the after-tax treatment commonly applied to debt in WACC.
    • Using this arithmetic output as a precise valuation discount rate without a complete financing model.
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Frequently Asked Questions

Does this calculator calculate WACC?

No. It adds debt cost and equity cost. WACC requires each component to be weighted by its share of capital and often adjusts debt for tax.

Should I enter 6 or 0.06 for a 6% rate?

Enter 6. The page treats the input as percentage points and displays the raw sum with a percent sign.

Why are market-value weights needed for WACC?

Debt and equity usually finance different proportions of the business. Weighting makes each required return contribute according to its capital share instead of simply adding the rates.

Can I use this result as a project discount rate?

Only if the method governing your analysis specifically requires this sum. Standard project valuation generally needs a risk-appropriate cost of capital based on fuller assumptions.

Does the calculation include the debt tax shield?

No. There is no tax-rate input, and the page simply adds the two entered rates. A conventional after-tax WACC often multiplies debt cost by one minus the applicable tax rate before weighting it.

Should debt and equity costs use the same time basis?

Yes. Combining a monthly rate with an annual rate has no useful meaning. Convert both to a consistent annual or periodic basis, while accounting properly for compounding where relevant. The currency and whether rates are nominal or real should also match before any meaningful financial rate comparison.

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Sources & References

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