---
name: "valuation_wacc"
area: "valuation"
title: "Work out the WACC"
price: "free"
method: "POST"
url: "https://api.conecto.chat/v1/tools/valuation_wacc"
mcp_server: "https://api.conecto.chat/mcp/valuation"
auth: "Authorization: Bearer <conecto_sk_ key>"
docs_url: "https://conecto.chat/tools/valuation/valuation_wacc"
---

# Work out the WACC (`valuation_wacc`)

The WACC from the risk-free rate, the market premium and a beta relevered from peers, with each step written out.

The cost of capital: CAPM cost of equity from the risk-free rate, the equity risk premium and a beta (given levered, given unlevered, or from peers, each unlevered at its own debt to equity and the median or mean relevered at the target's), plus any premiums; the cost of debt after tax; and the WACC at the target capital structure. Hamada (with the tax shield) or Harris-Pringle. Each step is written out. valuation_rates gives today's risk-free rates.

Price: Free up to 1,000,000 reads a month for the whole account, then $0.50 per 10,000 reads. A call that fails costs nothing.

## Use it when

Before a DCF, to set the discount rate.

## Say this to your agent

> What discount rate should we use for Kuechentechnik Nord if it is financed 40% with debt at 5.2%? Use Rational, Middleby and Welbilt as peers.

## Inputs

| Name | Type | Required | Description | Allowed values | Default |
|---|---|---|---|---|---|
| `risk_free_rate` | number | yes | The risk-free rate. A decimal: 0.09 is 9%. -0.05 to 0.3. |  |  |
| `equity_risk_premium` | number | yes | The market risk premium. A decimal: 0.09 is 9%. 0 to 0.3. |  |  |
| `tax_rate` | number | yes | The target's tax rate. A decimal: 0.09 is 9%. 0 to 0.9. |  |  |
| `pre_tax_cost_of_debt` | number | yes | What the target pays on debt, before tax. A decimal: 0.09 is 9%. 0 to 1. |  |  |
| `target_debt_to_equity` | number | no | Debt / equity at the target capital structure. Or give target_debt_weight. 0 to 20. |  |  |
| `target_debt_weight` | number | no | Debt / (debt + equity). A decimal: 0.09 is 9%. 0 to 0.95. |  |  |
| `levered_beta` | number | no | Use this beta as it is. -5 to 10. |  |  |
| `unlevered_beta` | number | no | Relevered at the target capital structure. -5 to 10. |  |  |
| `peers` | array of objects | no | 1 to 50 items. |  |  |
| `peers[].name` | string | yes, in each item of `peers` | 1 to 200 characters. |  |  |
| `peers[].levered_beta` | number | yes, in each item of `peers` | -5 to 10. |  |  |
| `peers[].debt` | number | yes, in each item of `peers` | At least 0. |  |  |
| `peers[].equity` | number | yes, in each item of `peers` | Market value of equity. |  |  |
| `peers[].tax_rate` | number | no | The peer's own; the target's when left out. A decimal: 0.09 is 9%. 0 to 0.9. |  |  |
| `peer_statistic` | string | no |  | `"median"`, `"mean"` | `"median"` |
| `relevering` | string | no |  | `"hamada"`, `"harris_pringle"` | `"hamada"` |
| `debt_beta` | number | no | -1 to 3. |  | `0` |
| `size_premium` | number | no | Added to the cost of equity. A decimal: 0.09 is 9%. -0.2 to 0.5. |  |  |
| `country_risk_premium` | number | no | Added to the cost of equity. A decimal: 0.09 is 9%. -0.2 to 0.5. |  |  |
| `other_premium` | number | no | Any other premium added to the cost of equity. A decimal: 0.09 is 9%. -0.2 to 0.5. |  |  |

## Example

Written for Hansen & Voss, a restaurant-equipment wholesaler in Hamburg with 60 staff.

MCP: call `valuation_wacc` on the MCP server `https://api.conecto.chat/mcp/valuation` with these arguments:

```json
{
  "risk_free_rate": 0.0339,
  "equity_risk_premium": 0.055,
  "tax_rate": 0.3,
  "pre_tax_cost_of_debt": 0.052,
  "target_debt_to_equity": 0.4,
  "peers": [
    {
      "name": "Rational AG",
      "levered_beta": 0.92,
      "debt": 12,
      "equity": 7200,
      "tax_rate": 0.28
    },
    {
      "name": "Middleby",
      "levered_beta": 1.21,
      "debt": 2400,
      "equity": 7600,
      "tax_rate": 0.24
    },
    {
      "name": "Welbilt",
      "levered_beta": 1.35,
      "debt": 1500,
      "equity": 3100,
      "tax_rate": 0.24
    }
  ]
}
```

REST:

```bash
curl https://api.conecto.chat/v1/tools/valuation_wacc \
  -H "Authorization: Bearer $CONECTO_KEY" \
  -H "Content-Type: application/json" \
  -d '{"risk_free_rate": 0.0339, "equity_risk_premium": 0.055, "tax_rate": 0.3, "pre_tax_cost_of_debt": 0.052, "target_debt_to_equity": 0.4, "peers": [{"name": "Rational AG", "levered_beta": 0.92, "debt": 12, "equity": 7200, "tax_rate": 0.28}, {"name": "Middleby", "levered_beta": 1.21, "debt": 2400, "equity": 7600, "tax_rate": 0.24}, {"name": "Welbilt", "levered_beta": 1.35, "debt": 1500, "equity": 3100, "tax_rate": 0.24}]}'
```

## Response

```json
{
  "call_id": "5f0c8a2e-3b7d-4c1e-9a64-2d8e1f7b0c93",
  "tool": "valuation_wacc",
  "status": "succeeded",
  "replayed": false,
  "cost_usd": "$0.00",
  "balance_usd": "$19.75",
  "result": {
    "beta": {
      "relevering": "hamada",
      "target_debt_to_equity": 0.4,
      "peers": [
        {
          "name": "Rational AG",
          "levered_beta": 0.92,
          "debt_to_equity": 0.001667,
          "tax_rate": 0.28,
          "unlevered_beta": 0.918897
        },
        {
          "name": "Middleby",
          "levered_beta": 1.21,
          "debt_to_equity": 0.315789,
          "tax_rate": 0.24,
          "unlevered_beta": 0.975806
        }
      ],
      "statistic": "median",
      "unlevered_beta": 0.975806,
      "levered_beta": 1.249032
    },
    "cost_of_equity": 0.102597,
    "cost_of_debt_after_tax": 0.0364,
    "weights": {
      "equity": 0.714286,
      "debt": 0.285714
    },
    "premiums": 0.0,
    "wacc": 0.083683,
    "steps": [
      "Unlevered beta: the median of 3 peers, each unlevered at its own debt to equity (hamada) = 0.9758",
      "Relevered at a debt to equity of 0.4000: 1.2490"
    ]
  }
}
```

`result`: beta (peers with their unlevered_beta, statistic, unlevered_beta, levered_beta, relevering, target_debt_to_equity), cost_of_equity, cost_of_debt_after_tax, weights (equity, debt), premiums, wacc and steps, each calculation in words.

## Errors

| Code | Status | When | Fix |
|---|---|---|---|
| `invalid_input` | 400 | Not exactly one beta (levered, unlevered or peers), not exactly one capital structure, or a peer with no equity. | Give one beta source and one of target_debt_to_equity or target_debt_weight. |

The refusals every tool can give (401 key, 402 balance, 429 limits) are on the errors page: https://conecto.chat/docs/errors.md

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