Assumptions and method
Use suitable market values and an applicable tax assumption. Corporate WACC is not automatically a suitable project rate.
Test a scenario
Use the result in a decision
Use consistent currency, timing and price assumptions.
Use suitable market values and an applicable tax assumption. Corporate WACC is not automatically a suitable project rate.
Set a baseline and change one assumption to compare outcomes.
A worked example
Follow the fixed teaching example
- Financing totals 700 + 300 = 1,000; the weights are 0.7 and 0.3.
- WACC = 0.7 × 12% + 0.3 × 6% × (1 − 0.25) = 9.75%.
These illustrative inputs describe a project scenario, not a published benchmark. All monetary inputs use the same currency and price basis.
- Market value of equity
- 700
- Market value of debt
- 300
- Equity cost (%)
- 12
- Debt cost (%)
- 6
- Applicable tax rate (%)
- 25
- WACC
- 9.75 %
Interpret the output only within the assumptions above. Changing the inputs changes the result; it does not validate the inputs.
Source & credit
Standard corporate-finance calculation; no single inventor is asserted.
This is independently written code and explanation of the underlying method. The linked publication, its diagrams and its trademarks remain its owner’s material; no permission to reuse them is implied.