# Cost of Capital Calculator

URL: https://speedycalculator.com/calculators/finance/cost-of-capital/
Last updated: 2026-10-25

> The cost of capital calculator combines the after-tax cost of debt and the cost of equity (from the CAPM) into a company's weighted average cost of capital – the minimum return its projects must earn.

## Inputs

- Risk-free rate (%)
- Equity beta
- Market risk premium (%)
- Pre-tax cost of debt (%)
- Tax rate (%)
- Market value of equity
- Market value of debt

## Results

- Cost of equity
- After-tax cost of debt
- Equity weight
- Cost of capital (WACC)

## Formula

```
Cost of equity = risk-free rate + β × market risk premium
After-tax cost of debt = pre-tax cost of debt × (1 − tax rate)
Cost of capital = E ÷ (D + E) × cost of equity + D ÷ (D + E) × after-tax cost of debt
```

## Explanation

A company is financed by debt and equity, and each has a price. Debt is cheaper, partly because interest is tax-deductible, but too much raises risk. The weighted cost of capital is the hurdle rate for new investments.

### How to use the Cost of Capital Calculator

- **Risk-free rate**
- **Equity beta**
- **Market risk premium**
- **Pre-tax cost of debt**
- **Tax rate**
- **Market value of equity**
- **Market value of debt**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the CAPM inputs for equity, the pre-tax cost of debt and tax rate, and the market values of equity and debt.

### Tips

- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.

### Common mistakes to avoid

- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.

### Inputs explained

FieldWhat to enterRisk-free rateIn %Equity betaA numberMarket risk premiumIn %Pre-tax cost of debtIn %Tax rateIn %Market value of equityAmount in your currencyMarket value of debtAmount in your currency

### What each result means

- **Cost of equity** = [Risk-free rate] + [Equity beta]×[Market risk premium]
- **After-tax cost of debt** = [Pre-tax cost of debt]×(1 - [Tax rate]÷100)
- **Equity weight** = [Market value of equity]÷([Market value of debt] + [Market value of equity])×100
- **Cost of capital (WACC)** = [Market value of equity]÷([Market value of debt] + [Market value of equity])×[Cost of equity] + [Market value of debt]÷([Market value of debt] + [Market value of equity])×[After-tax cost of debt]

### Example values

How the main result changes when **Risk-free rate** changes and everything else stays at the example values above:

Risk-free rate (%)Cost of capital (WACC) (%)2.17.263.1584.28.755.259.496.310.238.411.71

## Worked example

Inputs — Risk-free rate: 4.2 %; Equity beta: 1.1; Market risk premium: 5.5 %; Pre-tax cost of debt: 6.5 %; Tax rate: 21 %; Market value of equity: $600,000,000; Market value of debt: $250,000,000.

Results — Cost of equity = 10.25 %; After-tax cost of debt = 5.14 %; Equity weight = 70.59 %; **Cost of capital (WACC) = 8.75 %**.

## FAQ

**What is the cost of capital?**
The return a company must earn to satisfy its debt and equity investors.

**Why use after-tax cost of debt?**
Interest is tax-deductible, which lowers its real cost.

**Should I use book or market values?**
Market values reflect what investors would pay today.

**What formula does the Cost of Capital Calculator use?**
Cost of equity = risk-free rate + β × market risk premium.


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)