In case the company is financed with only shareholder equity E and debt D, the average cost of capital is computed as follows:
| (1) | {\displaystyle {\text{WACC}}={\frac {D}{D+E}}\, K_D+{\frac {E}{D+E}} \, K_E} |
where
K_D | cost of debt |
K_E | cost of equity |
When WACC is calculated for the purposes of setting up a discount rate in investment projects, the market values of cost of debt and cost of equity should be used in WACC formula (1)