WACC Hurdle Rate Calculator for Manufacturers
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.
Your numbers
Long-dated government bond yield in your currency.
Use an industry average of listed peers, relevered to your capital structure.
Added for small or private companies.
Your results
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.
Cost of equity and WACC vs equity beta
Sweeps Equity beta from 0.6 to 2, holding your other inputs fixed.
Capex template for your ERP
Optional: ask how a standard capital request with NPV and hurdle check can run from your ERP.
Optional. The tool and every export work without this. No spam.
How to use it
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
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.
- 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
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.
Frequently Asked Questions
Which beta should a private manufacturer use?
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?
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?
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?
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.
If you want capital request forms in your ERP to use consistent hurdle rates and NPV templates, we can discuss how to build them.
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