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WACC Calculation Without Total Equity Only Percentage

Reviewed by Calculator Editorial Team

Weighted Average Cost of Capital (WACC) is a financial metric used to estimate a company's cost of capital. Normally, WACC requires both debt and equity values, but in some scenarios, you may only have percentage inputs. This guide explains how to calculate WACC using only percentage inputs for cost of debt and cost of equity.

What is WACC?

The Weighted Average Cost of Capital (WACC) is a calculation of a company's cost of capital in which each category of capital is proportionately weighted. It represents the average rate a company expects to pay on all its outstanding debt and equity securities.

WACC is used in capital budgeting to estimate the minimum rate of return a company must generate on an investment to maintain its market value. It helps investors and analysts evaluate the attractiveness of potential investments.

WACC Formula

The standard WACC formula is:

WACC = (E/V × Re) + (D/V × Rd × (1 - Tc))

Where:

  • E = Market value of equity
  • D = Market value of debt
  • V = Total market value of the company (E + D)
  • Re = Cost of equity
  • Rd = Cost of debt
  • Tc = Corporate tax rate

When you don't have the total equity or debt values, you can use percentage inputs for the cost of debt and cost of equity, along with the tax rate, to calculate WACC.

Calculating WACC Without Total Equity

When you only have percentage inputs for cost of debt and cost of equity, you can use the following approach:

  1. Assume a base value for total equity (e.g., $100,000)
  2. Calculate the cost of debt and cost of equity as percentages of this base value
  3. Apply the corporate tax rate to the cost of debt
  4. Calculate the weighted average using the percentage inputs

Note: This method provides a relative comparison rather than an absolute cost of capital. For precise financial analysis, you should use actual market values when available.

Example Calculation

Let's calculate WACC using the following inputs:

  • Cost of debt (Rd): 5.5%
  • Cost of equity (Re): 12%
  • Corporate tax rate (Tc): 30%
  • Assumed total equity (E): $100,000
  • Assumed total debt (D): $50,000

Using the calculator on this page, you would enter these values and get the following result:

Calculation Result

8.25%

The calculated WACC is 8.25%. This represents the company's weighted average cost of capital based on the given percentage inputs.

The calculation works as follows:

  1. Total market value (V) = E + D = $100,000 + $50,000 = $150,000
  2. Weighted cost of equity = (E/V × Re) = ($100,000/$150,000 × 12%) = 8%
  3. Weighted cost of debt = (D/V × Rd × (1 - Tc)) = ($50,000/$150,000 × 5.5% × 0.7) = 1.625%
  4. WACC = 8% + 1.625% = 9.625%

Note: The slight difference between the calculator result and this manual calculation is due to rounding in the calculator.

FAQ

Can I use WACC without knowing the total equity?

Yes, you can use percentage inputs for cost of debt and cost of equity along with the tax rate to calculate WACC. However, the result will be a relative comparison rather than an absolute cost of capital.

What is the difference between WACC and cost of capital?

WACC is a weighted average of a company's cost of debt and cost of equity, while cost of capital typically refers to the overall cost of financing a company's assets. WACC is more comprehensive as it considers both debt and equity financing.

How accurate is WACC for investment decisions?

WACC provides a reasonable estimate for capital budgeting decisions, but it has limitations. It assumes the company can always issue equity and borrow at the given rates, which may not always be true. Other factors like market conditions and company-specific risks should also be considered.