Financial Calculations & Valuation Beginner

Calculate WACC (Weighted Average Cost of Capital) & CAPM in Python

Python script to calculate Weighted Average Cost of Capital (WACC) using CAPM Cost of Equity, After-Tax Cost of Debt, and market capital structure weights.

#numpy

Problem Statement

Accurate DCF valuation requires a precise discount rate that accounts for equity beta and tax shields on corporate debt. This script computes CAPM Cost of Equity and blended WACC.

Formula / Core Logic

Ke = Rf + Beta * (Rm - Rf) Kd_after_tax = Kd_pre_tax * (1 - Tax_Rate) WACC = (E/V * Ke) + (D/V * Kd_after_tax)

Installation

pip install numpy

calculate-wacc-weighted-average-cost-of-capital-python.py

def calculate_wacc(market_cap_equity, total_debt, rf_rate, beta, market_return, pre_tax_debt_cost, tax_rate):
    total_value = market_cap_equity + total_debt
    weight_e = market_cap_equity / total_value
    weight_d = total_debt / total_value
    
    cost_of_equity = rf_rate + beta * (market_return - rf_rate)
    after_tax_debt = pre_tax_debt_cost * (1 - tax_rate)
    wacc = (weight_e * cost_of_equity) + (weight_d * after_tax_debt)
    
    return {'Cost_of_Equity_Pct': round(cost_of_equity * 100, 2), 'After_Tax_Debt_Pct': round(after_tax_debt * 100, 2), 'WACC_Pct': round(wacc * 100, 2)}

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Frequently Asked Questions

Q: Should I use Book Value or Market Value of equity for WACC?

Always use Market Capitalization for equity weight and carrying value (or market value of bonds) for debt.