Formula
WACC = (E/V × Re) + (D/V × Rd × (1 − Tax Rate)), where E is equity value, D is debt, V is E + D, Re is cost of equity and Rd is cost of debt.
Cost of equity
Usually estimated with the Capital Asset Pricing Model (CAPM): risk-free rate + beta × equity risk premium. In the US, the 10-year Treasury yield is a common risk-free proxy.
Using WACC
WACC is the discount rate for unlevered free cash flows in a DCF and a hurdle rate for new projects.
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