Caterpillar WACC - Weighted Average Cost of Capital
The WACC of Caterpillar Inc (CAT) is 9.0%.
| Range | Selected | |
| Cost of equity | 8.9% - 11.3% | 10.1% |
| Tax rate | 21.5% - 22.5% | 22% |
| Cost of debt | 4.0% - 4.8% | 4.4% |
| WACC | 7.9% - 10.0% | 9.0% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.1 | 1.15 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.9% | 11.3% |
| Tax rate | 21.5% | 22.5% |
| Debt/Equity ratio | 0.2 | 0.2 |
| Cost of debt | 4.0% | 4.8% |
| After-tax WACC | 7.9% | 10.0% |
| Selected WACC | 9.0% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| CAT | Caterpillar Inc | 0.2 | 1.24 | 1.07 |
| CMI | Cummins Inc | 0.15 | 1.16 | 1.04 |
| GBX | Greenbrier Companies Inc | 1.04 | 0.89 | 0.49 |
| MTOR | Meritor Inc | 0.4 | 1.53 | 1.17 |
| NAV | Navistar International Corp | 1.2 | 1.88 | 0.97 |
| NFI.TO | NFI Group Inc | 0.74 | 0.62 | 0.39 |
| OSK | Oshkosh Corp | 0.13 | 1.4 | 1.28 |
| PCAR | Paccar Inc | 0.31 | 0.85 | 0.68 |
| TEX | Terex Corp | 0.76 | 1.6 | 1 |
| WAB | Westinghouse Air Brake Technologies Corp | 0.11 | 1.24 | 1.14 |
| Low | High | |
| Unlevered beta | 0.99 | 1.05 |
| Relevered beta | 1.15 | 1.22 |
| Adjusted relevered beta | 1.1 | 1.15 |
Caterpillar'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 Caterpillar:
cost_of_equity (10.10%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.1) + 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.