Discount Rate Calculator
Cost of Equity & WACC
What is Discount Rate?
Discount rate reflects the opportunity cost of investment (i.e. the return that could be earned on investment with similar risk). In DCF valuation, it is used as a rate that reflects the risk associated with a company's cash flows.
What is Cost of Equity?
A firm's cost of equity represents the compensation the market demands in exchange for owning the asset and bearing the risk of ownership. Cost of equity can be used as a discount rate if you use levered free cash flow (FCFE) or if the firm doesn’t possess debt (i.e., the firm only raises money through issuing stock).
The traditional method for calculating the cost of equity is the Capital Asset Pricing Model (CAPM).
What is WACC?
The weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. That means that WACC can be used as a discount rate if you use unlevered free cash flow (FCFF).
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