How to calculate the WACC discount rate

In most investment analysis, we ask that we use the discount rate. But what is the discount rate (WACC) ? The discount rate is the minimum return required for any investment project. Therefore, we will accept an investment if its performance is above the WACC (%). In this article we will explain how to calculate WACC.

• Spreadsheet (Excel)

one

Obtain the following data regarding the investment with its values:

• D: Financial debt = 6743
• E: Capital contributed by shareholders = 65716
• Kd: Cost of financial debt = 0.04%
• T: The tax paid on profits = 24%
• Ke: Profitability demanded by the shareholders (it would be like the interest demanded by the shareholders although no interest is charged) = 3.53%

two

Perform the following operation:

Kd * D (1-T) + Ke * E = 0.0004 * 6743 (1-0.24) + 0.0353 * 65761 = 2.04 + 2321.37 = 2323.4

3

Once you have done point 2, perform the following operation:

E + D = 65761 + 6743 = 72504

4

Once you have both results, divide them and you will obtain the WACC :

WACC = (Kd * D (1-T) + Ke * E) / (E + D) = 2323.4 / 72504 = 0.032

We multiply this value by 100 to obtain the percentage and obtain the result of 3.20%