How the WACC changes with leverage, accounting for the debt tax shield.
The weighted average cost of capital is the blended return a company must earn for its equity and debt holders. This WACC calculator combines the cost of equity and the after-tax cost of debt by their market-value weights, and shows how the interest tax shield and leverage move the result.
Interest payments are tax-deductible, so the effective cost of debt to the firm is r_d × (1 − tax rate).
It is the discount rate for a company's free cash flows in a DCF valuation and the hurdle rate for projects with the same risk as the firm.