WACC teaching model

Interactive Weighted Average Cost of Capital WACC

Students can adjust debt and equity inputs and watch the Scale move in real time. The left side reflects debt, the tax shield, and after-tax borrowing cost. The right side reflects equity.
Formula
WACC = wd × rd × (1 - T) + we × re

Interactive scale

Watch the beam tilt as the after-tax debt side and equity side change.
Capital mix total: 100.0%
WACC balance scale
DEBT SIDE wd · rd · (1-T) Tax shield reduces the effective debt burden EQUITY SIDE we · re Higher required return on equity
Balance control
50.0%
Balanced: debt and equity are equal.
After-tax debt cost
4.5%
Debt cost of 6.0% reduced by the tax shield.
Blended WACC
9.0%
This is the overall weighted average cost of capital.
Debt contribution
1.8%
wd × rd × (1 - T)
Equity contribution
7.2%
we × ke
Tax shield effect
The tax shield reduces the effective debt burden and makes the left side lighter.
Left side
Debt weight: 40.0%
Debt cost: 6.0% · Tax rate: 25.0%
Right side
Equity weight: 60.0%
Equity cost: 12.0%
Interpretation
Equity dominates
Students can change the inputs and see the balance change instantly.

Student controls

Use the sliders or the buttons to change each input.
Debt weight
Share of capital financed by debt.
40.0%
Debt cost
Pre-tax borrowing cost.
6.0%
Tax rate / tax shield
Higher tax rates increase the value of the shield.
25.0%
Equity weight
Share of capital financed by equity.
60.0%
Equity cost
Expected return demanded by equity investors.
12.0%
This version intentionally leaves out preferred stock so students focus on the two main pieces of WACC: debt and equity. The left side is visually softened by the tax shield so students can connect the formula to the picture.