|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This spreadsheet allows you to estimate the cost of capital for your firm.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
|
Inputs
|
|
Source
|
|
|
|
|
|
|
|
|
|
Cost of Equity
|
|
|
|
|
|
|
|
|
|
4.5%
|
|
20 - Year US Treasury Bond
|
|
|
|
|
1.0
|
|
Found on Yahoo, Bloomberg and Barra Beta
|
|
|
Market Risk Premium (MRP) (3)
|
|
5.0%
|
|
Best approximate number for the last century.
|
|
|
Concluded Cost of Equity (ke)
|
|
9.5%
|
|
ke (CAPM) = RF + (MRP)B
|
|
|
|
|
|
|
|
|
|
Cost of Debt (After Tax)
|
|
|
|
|
|
|
Cost of Debt (kd) (4)
|
|
6.0%
|
|
Industry Average
|
|
|
|
|
40.0%
|
|
Approximate Domestic Tax Rate (Corporate and State)
|
|
|
Concluded After Tax Cost of Debt
|
|
3.6%
|
|
kd (after tax) = kd *(1-t)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concluded Cost of Equity (6)
|
9.5%
|
|
Linked from Above
|
|
|
Concluded After Tax Cost of Debt (7)
|
3.6%
|
|
Linked from Above
|
|
|
Equity as % of Total Capital (%e) (8)
|
75.0%
|
|
Industry Average
|
|
|
Debt as % of Total Capital (%d) (9)
|
25.0%
|
|
Industry Average
|
|
|
|
|
|
|
|
|
|
Concluded WACC (rounded)
|
8.0%
|
|
WACC: (ke * %e) + (kd * %d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Notes:
|
|
|
|
|
|
|
|
|
1: Risk-Free Rate accounts for inflation and other investment risks. Use the bond (5, 10, 20 yr) that corresponds with your investment horizon.
|
|
|
|
|
|
|
|
2: Beta is the regression of the returns on your investment versus the market returns. High betas correspond with volatility.
|
|
|
|
|
|
|
|
3: MRP should be between 4 and 6% based on your source and time horizon.
|
|
|
|
|
|
|
|
4: Cost of Debt is measured several ways:
|
|
|
|
|
|
|
|
|
1: Found by using the debt yield curve most appropriate for the level of risk of the company. (e.g. 20 year "AAA" investment grade =3%)
|
|
|
|
|
|
|
|
2: Yield on the companies current outstanding debt.
|
|
|
|
|
|
|
|
3: Add a premium to the current market risk premium to account for the added risk of the debt.
|
|
|
|
|
|
|
5: US corporate tax rate is approximately 40% (state and federal).
|
|
|
|
|
|
|
|
6: Defined as the cost to acquire new equity capital such as an IPO
|
|
|
|
|
|
|
|
7: Defined as the cost to acquire new debt capital
|
|
|
|
|
|
|
|
8: Percentage of capital that comes from equity; usually best to take the industry or comparable company average.
|
|
|
|
|
|
|
|
9: Percentage of capital that comes from interest-bearing debt (include Lt and St debt, capital leases and preferred debt);
|
|
|
|
|
|
|
|
usually best to take the industry or comparable company average.
|
|
|
|
|
|