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Estimating Discount Rates🔵 Intermediate

What Minimum Return Does a Business Need to Keep Investors Happy?

The Blended Cost of Capital for the Whole Firm

WACC is the weighted average of what equity and debt investors require. It is the discount rate for firm-level DCF (FCFF).

WACCCost of CapitalCapital StructureDiscount Rate

Live Result

$0.099405

ƒ: (E/(E+D)) * ke + (D/(E+D)) * kd * (1 - tax)raw: 0.0994050

ƒ(x)

Use variable names from the panel above (e.g. FV, r, n) — or type numbers directly: 10000 / (1 + 0.08)^10

Market value of equity

E = 700

Market value of debt

D = 300

ke% as decimal

Cost of equity (from CAPM)

ke = 0.12

kd% as decimal

Pre-tax cost of debt

kd = 0.06

tax% as decimal

Marginal tax rate

tax = 0.25

💡 You can also enter values directly in the formula: 10000 / (1 + 0.08)^10

⬇ Export Calculation

Exports a plain .txt file with your expression, formula, all variable values, result, and educational notes — ready to paste into any report, Word doc, Notion, or Google Docs.

The exported file includes the formula in standard mathematical notation — you can paste it directly into Excel, Google Sheets, or back into FinanceSheep.

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Learn: The Blended Cost of Capital for the Whole Firm

Estimating Discount Rates · Educational Guide

The Core Idea

A company is financed by two groups: equity investors (shareholders) and debt holders (bondholders/banks). Each demands a different return. WACC is the weighted average of both — the company's total cost of funding.

How It Works

WACC = (E/V) × ke + (D/V) × kd × (1−tax). Weights are based on market value proportions. It represents the minimum return the company must earn on all its assets to satisfy both shareholders and creditors.

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Real-World Example: E = $700M, D = $300M, ke = 12%, kd = 6%, tax = 25%: WACC = (700/1000) × 12% + (300/1000) × 6% × 0.75 = 8.4% + 1.35% = 9.75%. Every dollar invested must return at least 9.75% to cover capital costs.

What Minimum Return Does a Business Need to Keep Investors Happy?

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