


The WACC is an acronym for weighted average cost of capital that a company or entity has to pay to help finance a project. As it says it is an average where the weights are the proportions of debt, equity and preferrence stock. The three components are the cost of debt, cost of equity and cost of preferred stock. Thus a cost of debt is the interest rate that must be returned by the investment to pay for the financing. Anything above the WACC from the investment is to keep as profits by the company. If an investment projects fails to make enough returns to match the WACC then the company would have to pay out of its pockets to the lenders. Here I present you a WACC document as a Word file that will explore the topic of weighted average cost of capital in detail. A WACC formula will be provided along with example calculation of WACC. The document will also highlight the use of Excel WACC formula that may be used as worksheet function to find the weighted average cost of capital.
Finding WACC in Excel
Up until Excel 2013, there were no native financial functions in Excel to find the WACC  weighted average cost of capital. In spring of 2012, tadXL addin for finance was unleashed on the software market that offered its own set of financial functions. tadXL contains over 100 new financial functions that may be used as worksheet functions for Excel 2007, 2010 and 2013. The word spread quickly when the promotion videos for tadXL went viral on YouTube resulting in surge for orders for this unique and feature rich library of financial functions for Excel. The author of tadXL has his own sets of core values that he practices and this was one of the reasons he found himself left out of making big bucks off his crown jewel software product. But competition was in no mood to lose out on a quick large pile of cash and they decided to work their sets of financial functions that would be based on those found in tadXL. It would not surprise me if Microsoft were to introduce a new set of financial functions in upcoming Excel 2015 or 2016 but that would leave the author asking a very simple question. If nothing for financial functions in Excel changed in the last 24 years what brings about the inclusion of new set of financial functions in upcoming Excel. You would think that copy rights are only violated by companies and countries outside the US, but it would seem those who demand enforcement of copy protection against piracy do not give high regards to rights of other copy rights holders whose genuine ideas seem to be left out of the mass market.
Using tadXL functions such as tadWACC_1, tadWACC_2, and tadWACC_3 finding weighted average cost of capital in Excel 2007, 2010 and 2013 becomes really easy. Let us now briefly look at each of these three financial functions in tadXL to find WACC using Excel:
In the first example, CAPM is used for cost of equity.
=tadWACC_1( {PKd, Kd, taxrate, PKe, Rf, ERm, Beta} )
PKd  proportion or weightage of cost of debt
Kd  cost of debt
taxrate
PKd  proportion or weightage of cost of equity
Rf  risk free rate
ERm  expected market rate of return
Beta
In the second example, values for WACC components and their weightage is known.
=tadWACC_2( {PKd, Kd, taxrate, PKcs, Kcs, PKps, Kps} )
PKd  proportion or weightage of cost of debt
Kd  cost of debt
taxrate
PKcs  proportion or weightage of cost of commony stock
Kcs  cost of commony stock
PKps  proportion or weightage of cost of preferred stock
Kps  cost of preferred stock
In the third example, values for WACC components are unknown yet their weightage is known.
=tadWACC_3( {PKd, BT, Vb, C, T, taxrate, PKcs, Vcs, Dcs, G, PKps, Vps, Dps} )
PKd  proportion or weightage of cost of debt
BT  maturity value of debt
Vb  market price of debt
C  coupon rate of debt
T  years to maturity
taxrate
PKcs  proportion or weightage of cost of commony stock
Vcs  market price of common stock
Dcs  dividend paid by common stock
G  expected growth rate
PKps  proportion or weightage of cost of preferred stock
Vcs  market price of preferred stock
Dcs  dividend paid by preferred stock