Possible issues with the way that website calculates WACC:
1) It considers the average historical rate of return for the market to be 11%, which is probably over optimistic
2) It considers the current risk free rate to 3%, which is definitely over optimistic
Other notes: they seem to use the same beta as yahoo financial and they use the CAPM model to calculate cost of equity
Weighted Average Cost of Capital (WACC) = (cost of equity * %equity) + (cost of debt * %debt)(1-tax rate)
Using the CAPM model
cost of equity = risk free rate + Beta of stock *(expected return of the general market - risk free rate)
(10-15-2014, 06:49 AM)rapidacid Wrote: [ -> ] (10-14-2014, 01:52 PM)benjamen Wrote: [ -> ]1) It considers the average historical rate of return for the market to be 11%, which is probably over optimistic
From Jan 1, 1871 to Dec 31, 2013 I get 10.75% avg return:
http://www.moneychimp.com/features/market_cagr.htm
(10-14-2014, 01:52 PM)benjamen Wrote: [ -> ]2) It considers the current risk free rate to 3%, which is definitely over optimistic
Isn't the 30yr treasury rate the proxy to use for risk free rate? Currently 3.12%
http://www.treasury.gov/resource-center/...data=yield
For the average market return, what time frame you use can greatly impact your numbers. I usually see 8-10% used for the market rate, but it is up to the analyst.
I had not looked at the 30yr rate in a while. I thought it was still sub 3%. Also, what day you fix the rate for your calculation can matter. Just this month the rate has ranged from 3.15 and 2.95%
I do like how the site you found lets you adjust numbers. Great find!