# WACC Hurdle Rate Calculator for Manufacturers

> Source: https://netray.co/tools/wacc-hurdle-rate-calculator-for-manufacturers
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Builds a hurdle rate from CAPM cost of equity, a size premium, after-tax cost of debt and the capital structure of your business.

## Category

cost-finance

## Industry

Discrete Manufacturing

## Audience

- CFO
- Corporate finance
- Controller

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Risk-free rate

**Key:** rf

**Type:** number

**Default:** 4.2

**Min:** 0

**Max:** 20

**Step:** 0.1

**Unit:** %

**Help:** Long-dated government bond yield in your currency.

#### Equity beta

**Key:** beta

**Type:** number

**Default:** 1.15

**Min:** 0.1

**Max:** 3

**Step:** 0.05

**Help:** Use an industry average of listed peers, relevered to your capital structure.

#### Equity risk premium

**Key:** erp

**Type:** number

**Default:** 5

**Min:** 0

**Max:** 12

**Step:** 0.25

**Unit:** %

#### Size and specific risk premium

**Key:** size

**Type:** number

**Default:** 1.5

**Min:** 0

**Max:** 10

**Step:** 0.25

**Unit:** %

**Help:** Added for small or private companies.

#### Equity value (market or estimated)

**Key:** equity

**Type:** number

**Default:** 60000000

**Min:** 0

**Step:** 1000000

**Unit:** $

#### Interest-bearing debt

**Key:** debt

**Type:** number

**Default:** 25000000

**Min:** 0

**Step:** 1000000

**Unit:** $

#### Pre-tax cost of debt

**Key:** kd

**Type:** number

**Default:** 7

**Min:** 0

**Max:** 30

**Step:** 0.25

**Unit:** %

#### Tax rate

**Key:** tax

**Type:** number

**Default:** 25

**Min:** 0

**Max:** 60

**Step:** 1

**Unit:** %

**Outputs:**

#### Cost of equity (CAPM + premium)

**Key:** ke

**Expr:** rf + beta * erp + size

**Format:** percent

#### After-tax cost of debt

**Key:** kd_at

**Expr:** kd * (1 - tax / 100)

**Format:** percent

#### Total capital

**Key:** cap

**Expr:** equity + debt

**Format:** currency

#### Equity weight

**Key:** we

**Expr:** equity / cap * 100

**Format:** percent

#### Debt weight

**Key:** wd

**Expr:** debt / cap * 100

**Format:** percent

#### WACC

**Key:** wacc

**Expr:** we / 100 * ke + wd / 100 * kd_at

**Format:** percent

**Primary:** true

**Description:** Use as the discount rate for projects with average risk.

#### Suggested hurdle rate (WACC plus 2 points project risk margin)

**Key:** hurdle

**Expr:** wacc + 2

**Format:** percent

**Primary:** true

**Chart:**

#### Cost of equity and WACC vs equity beta

**Type:** line

**X:** beta

**From:** 0.6

**To:** 2

**Steps:** 30

**Series:**

- ke
- wacc

**Disclaimer:** Illustrative. Market inputs change and valuation professionals may use different premiums or build-up methods. The 2 point project margin is a common rule of thumb, not a standard.

## Content

**Intro:** Every capex NPV depends on the discount rate, and many manufacturers use a round number set years ago. This calculator rebuilds a defensible rate from CAPM and your capital structure and adds a margin for project risk.

**Sections:**

#### How to use it

**Body:** Enter the risk-free rate, equity risk premium and a beta for your industry. Add a size premium if you are small or privately held. Provide equity value and debt, then the pre-tax interest rate and your tax rate. WACC and a suggested hurdle rate appear immediately. Use the chart to test how sensitive the rate is to the beta you choose, which is the least certain input.

#### The method behind it

**Body:** Cost of equity by the build-up approach is the risk-free rate plus beta times the equity risk premium plus any size premium. WACC weights the cost of equity and the after-tax cost of debt by their share of total capital.

**Bullets:**

- Cost of equity = risk-free + beta x equity risk premium + size premium.
- After-tax cost of debt = pre-tax rate x (1 - tax rate).
- WACC = E/(E+D) x Ke + D/(E+D) x Kd x (1 - t).
- Use target capital structure weights, not just today's if it will change.

#### Common mistakes

**Body:** Do not use book equity for the weights where a market or estimated value is available, and do not use the coupon on old debt instead of today's borrowing rate. Applying one company-wide WACC to every project ignores risk: a new product line or foreign plant deserves a higher rate than a like-for-like replacement. Finally, match currency: a rupee or rand project needs a local risk-free rate, not a dollar rate.

**Cta:** If you want capital request forms in your ERP to use consistent hurdle rates and NPV templates, we can discuss how to build them.

**Faq:**

#### Which beta should a private manufacturer use?

**Answer:** Take the unlevered betas of listed peers, average them, then relever at your own debt-to-equity ratio. Using raw peer betas without relevering mixes in their capital structure, not yours.

#### Is WACC the same as the hurdle rate?

**Answer:** Not necessarily. WACC is the average required return for an average-risk project. Many firms set a hurdle rate above it to cover estimation bias and project risk, as this tool suggests.

#### What equity risk premium is typical?

**Answer:** Published estimates for mature markets commonly fall in a range of about 4 to 6 percent, and emerging markets add country risk. Use a source you can cite and keep it consistent across analyses.

#### Why use after-tax cost of debt?

**Answer:** Interest is generally tax deductible, so the net cost to the company is lower. If you cannot use the deduction because of losses, set the tax rate to zero in the tool.

## Search terms

WACC calculator, weighted average cost of capital manufacturing, capex hurdle rate calculator, CAPM cost of equity calculator, cost of capital for private manufacturer, discount rate for equipment investment, after tax cost of debt WACC

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