AWK WACC - Weighted Average Cost of Capital

The WACC of American Water Works Company Inc (AWK) is 4.7%.

The Cost of Equity of American Water Works Company Inc (AWK) is 5.40%.

The Cost of Debt of American Water Works Company Inc (AWK) is 4.45%.

	Range	Selected
Cost of equity	4.40% - 6.40%	5.40%
Tax rate	21.60% - 22.20%	21.90%
Cost of debt	4.00% - 4.90%	4.45%
WACC	4.0% - 5.5%	4.7%

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	0.13	0.27

Additional risk adjustments	0.0%	0.5%
Cost of equity	4.40%	6.40%

Tax rate	21.60%	22.20%
Debt/Equity ratio	0.53	0.53
Cost of debt	4.00%	4.90%

After-tax WACC	4.0%	5.5%


Selected WACC	4.7%

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 (5.40%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.13) + 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.