AWK WACC - Weighted Average Cost of Capital

The WACC of American Water Works Company Inc (AWK) is 5.4%.

The Cost of Equity of American Water Works Company Inc (AWK) is 6.45%.

The Cost of Debt of American Water Works Company Inc (AWK) is 4.40%.

	Range	Selected
Cost of equity	5.70% - 7.20%	6.45%
Tax rate	22.00% - 22.80%	22.40%
Cost of debt	4.00% - 4.80%	4.40%
WACC	4.8% - 6.0%	5.4%

WACC

AWK WACC calculation

Category	Low	High

Long-term bond rate	3.9%	4.4%
Equity market risk premium	4.6%	5.6%
Adjusted beta	0.39	0.42

Additional risk adjustments	0.0%	0.5%
Cost of equity	5.70%	7.20%

Tax rate	22.00%	22.80%
Debt/Equity ratio	0.51	0.51
Cost of debt	4.00%	4.80%

After-tax WACC	4.8%	6.0%


Selected WACC	5.4%

AWK'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 AWK:

cost_of_equity (6.45%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.39) + 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.