THE BARATELLI INSTITUTE · Mentoring at Scale
FOR CFOS, FOUNDERS, BOARD MEMBERS, AND ANYONE WHO NEEDS A DEFENSIBLE DISCOUNT RATE

The discount rate every capital allocation decision turns on. Compute it once, defend it everywhere.

WACC is the single most-misused number in corporate finance. Most companies pick a round number ("we use 10%") and never re-examine it. The defensible version: cost of equity via CAPM (risk-free + beta × ERP + size premium), after-tax cost of debt, weighted by target capital structure. This tool walks the math, surfaces the levers that move WACC most, and produces a number you can take to a board.

CAPM
Cost of equity model
21%
Tax shield on debt
β
Industry levered beta
5-7%
Equity risk premium
YOUR WACC
1
Company & industry
2
Cost of equity
3
Cost of debt
4
Capital structure
5
WACC + sensitivity
STAGE 1 OF 5

Company & industry

Defaults model a $100M revenue mid-cap industrial — typical CFO-led capital allocation framework.

Different industries have different systematic risk. Aswath Damodaran's industry beta tables (NYU) are the standard reference. Tool uses representative levered betas; refine with peer-comp regression for material decisions.
Smaller companies have higher cost of equity (size premium). Per Duff & Phelps / Kroll Cost of Capital Navigator: large-cap (top decile by mkt cap) ~0%, mid-cap ~1.5%, small-cap ~3-4%, micro-cap ~5-6%, decile 10 (smallest) ~10%+.
Country risk premium for emerging markets. US/Canada/UK/EU developed: 0%. Tier 2 developed (Japan, Australia, S Korea): ~0.5%. Major EM (China, India, Brazil): 2-4%. Frontier / fragile EM: 5-10%+. Damodaran maintains country-risk tables.
Standard practice: 10-year Treasury yield. Currently ~4.5% (mid-2026). Use 30-year for very long-horizon DCFs; 5-year for short-horizon. The R_f rate moves WACC roughly point-for-point.
%
Why most companies use the wrong WACC. The two most common mistakes: (1) using the company\'s historical WACC instead of CURRENT (rate environments shift; 2021 WACC of 7% is wrong in a 2026 5%-Treasury world — closer to 9-10% now), (2) using a single WACC for the whole company when divisions have very different risk profiles (a CapEx project for a mature business unit vs a new venture should use different discount rates). The WACC calculation here is for total-company; for project-specific decisions, refine the beta and capital structure to the project\'s risk profile.
STAGE 2 OF 5

Cost of equity (CAPM)

CAPM: Cost of Equity = Risk-Free + Beta × Equity Risk Premium + Size Premium + Country Premium. Each input is a real number with a defensible source.

Premium investors demand for stocks over risk-free debt. Two main approaches: historical (S&P 500 vs T-bills, ~5-7% over 100+ years) or implied (Damodaran's monthly implied ERP, currently ~5%). Standard US ERP: 5-6%. Higher in volatile environments; lower in low-volatility. Use 5-6% unless you have a specific reason.
%
Industry-default beta is auto-set based on Stage 1 industry. Override here if you have a peer-comp regression beta or a Bloomberg / Yahoo Finance beta for your specific company. Beta of 1 = moves with market; <1 less volatile; >1 more volatile.
The beta question that matters most for private companies. Public companies have a Bloomberg-computed beta (5-year monthly returns regressed against S&P 500). Private companies don\'t. The standard approach: (1) identify 5-10 publicly-traded peers, (2) get each peer\'s levered beta, (3) UNLEVER each (β_unlevered = β_levered / [1 + (1-tax) × D/E]), (4) take median or mean unlevered beta, (5) RE-LEVER at YOUR target capital structure. Industry-default betas (above) are pre-computed on this basis. For acquisitions or material projects, do the peer-comp work properly — it\'s the most important cost-of-equity input.
STAGE 3 OF 5

Cost of debt

After-tax cost of debt = pretax interest rate × (1 − tax rate). The tax shield on debt interest is what makes debt cheaper than equity in most capital structures.

Yield-to-maturity on the company's existing debt OR the rate on a new issuance. Use synthetic rating spread if no public debt: AAA = ~25 bps over Treasury, BBB = ~150-200 bps, BB = ~300-400 bps, B = ~500-700 bps, CCC = ~1,000+ bps.
%
Federal C-corp: 21%. State adds 4-9%. Total combined typical: 25-27%. For pass-through entities owned by individuals, use the owner's combined federal + state ordinary rate (often 35-45%).
Estimated rating based on financial metrics (interest coverage, leverage ratio, profitability). Used to estimate spread over Treasury if you don\'t have a real debt rate.
If you have a real debt rate (from existing debt or recent quote), use input rate. If purely modeling, use synthetic rating + risk-free.
The "cost of debt" question that confuses CFOs. Should you use the rate on EXISTING debt (often locked in at lower historical rates) or NEW debt (today\'s market rate)? For WACC purposes: use NEW debt rate. WACC measures the marginal cost of capital — what you\'d pay to raise new financing. Existing low-rate debt is sunk; the question is what new investment requires.
STAGE 4 OF 5

Target capital structure

Use TARGET capital structure (long-run target debt/equity), not current. Current may be temporarily skewed (just refinanced, just IPO'd, etc.).

Long-run target % of capital structure that's debt. Most mature US companies: 25-50% debt. Capital-intensive (utilities, REITs): 50-70%. Tech (low debt): 5-25%. PE-backed: 60-80%. Use industry median if unsure.
%
100% − debt weight. Auto-computed; override if you have preferred stock (rare for non-financial companies).
%
The capital-structure choice that distorts WACC the most. Adding debt LOWERS WACC (debt is cheaper than equity due to tax shield), up to a point. But beyond an optimal D/E, financial-distress costs offset the tax-shield benefit. Modigliani-Miller in theory: capital structure is irrelevant; in practice: there\'s an optimal D/E where WACC is minimized, and it varies by industry and business risk. Most CFOs target the industry-median D/E and let the market price the result.
STAGE 5 OF 5 · YOUR WACC

Your WACC

Weighted Average Cost of Capital
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Cost of equity build-up

WACC formula

Sensitivity (1-point swings)

Components

Recommendations

PAIRS WITH
CapEx Justification · Stock Buyback Educator · §382 NOL · Asset vs. Stock Sale
Plug your defensible WACC into every capital allocation tool that takes a discount rate. CapEx Justification (NPV / IRR), Stock Buyback Educator (vs. ROIC), §382 NOL (PV of future tax savings), Asset vs. Stock Sale (PV of buyer step-up). One WACC, used everywhere. Subscribe to the library →
CFO & CONTROLLER'S GUIDE

WACC is one input. Capital allocation discipline is the rest.

WACC computation by division/project · CapEx hurdle setting above WACC · M&A discipline · buyback timing rules · dividend policy · debt-vs-equity capital-structure optimization · the long-term compounders' framework.

WACC is theoretically simple but fact-specific in practice. The model uses representative inputs but is NOT a substitute for project-specific analysis. Industry betas reflect mid-2026 levels per Damodaran NYU dataset; for material decisions, run peer-comp regression against your actual public peers. Size premiums reflect approximations of Duff & Phelps / Kroll Cost of Capital Navigator data. Country risk premiums vary materially and update regularly. The model does not separately compute: project-specific WACC adjustments, divisional WACC for multi-business companies, after-tax WACC vs pre-tax WACC distinction (we use after-tax throughout), liquidity discounts for private-company equity, marketability discounts, control premiums, or multi-currency capital structure. This is not investment, accounting, or M&A valuation advice.
WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator is one chapter of Private Equity Reference Guide.
The tool gives you the answer. The guide gives you the argument — the case law, the worked examples, the negotiation playbook, the cross-check tables, the exception cases. Read the chapter and you can defend your number to a board, a buyer, an examiner, or a counterparty.
The methodology behind this calculator is in Ch 18 Valuation Methodology of the reference guide.
See the Guide → Browse all 22 guides
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, appraisal, lending, insurance, or any other professional advice, and they do not create a fiduciary, attorney-client, accountant-client, or advisor-client relationship of any kind.

Estimates based on your inputs. All results are estimates derived from the data and assumptions you provide. Tax law, accounting standards, regulations, market conditions, and the specific facts of your situation can materially change the answer. The Baratelli Institute, its affiliates, and any co-branding professional make no warranty of accuracy, completeness, currency, or fitness for any particular purpose, and disclaim all liability for decisions made in reliance on the output.

Consult your own qualified professionals. Before acting on anything calculated here, consult your own attorney, CPA, financial advisor, appraiser, lender, or other qualified professional licensed in your jurisdiction who has reviewed your specific facts and applicable current law. The Baratelli Institute is a publisher of practitioner reference material. It is not a registered investment adviser, broker-dealer, law firm, accounting firm, appraisal firm, or lender.

Co-branded versions: If a professional advisor's name and contact information appear on this tool, that advisor has elected to make the tool available to clients as a courtesy. Inclusion of an advisor's name does not constitute the advisor's endorsement of any specific result, nor does it transfer professional responsibility for the underlying methodology to that advisor. The disclaimer above applies regardless of co-branding.