AAP
Advance Auto Parts Inc
Price:  
33.41 
USD
Volume:  
1,685,987.00
United States | Specialty Retail
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AAP WACC - Weighted Average Cost of Capital

The WACC of Advance Auto Parts Inc (AAP) is 6.8%.

The Cost of Equity of Advance Auto Parts Inc (AAP) is 8.90%.
The Cost of Debt of Advance Auto Parts Inc (AAP) is 5.70%.

Range Selected
Cost of equity 7.50% - 10.30% 8.90%
Tax rate 23.60% - 23.90% 23.75%
Cost of debt 4.40% - 7.00% 5.70%
WACC 5.5% - 8.0% 6.8%
WACC

AAP WACC calculation

Category Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.79 0.98
Additional risk adjustments 0.0% 0.5%
Cost of equity 7.50% 10.30%
Tax rate 23.60% 23.90%
Debt/Equity ratio 0.9 0.9
Cost of debt 4.40% 7.00%
After-tax WACC 5.5% 8.0%
Selected WACC 6.8%

AAP's CAPM model and how its cost of Equity is calculated

The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.

This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.

Here’s how we figure out the cost of equity for AAP:

cost_of_equity (8.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.79) + risk_adjustments (0.25%)

We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.