WACC Calculator

[rapidacid]

Just came across this nice & easy site that calculates the WACC of any symbol:

http://thatswacc.com/

Came from this article : http://seekingalpha.com/article/2557285-...away?ifp=0

[benjamen]

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)

[rapidacid]

(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

[benjamen]

(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!