CDNS WACC - Weighted Average Cost of Capital
The WACC of Cadence Design Systems Inc (CDNS) is 8.5%.
| Range | Selected | |
| Cost of equity | 7.4% - 9.9% | 8.65% |
| Tax rate | 15.0% - 18.8% | 16.9% |
| Cost of debt | 4.5% - 5.5% | 5% |
| WACC | 7.3% - 9.8% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.77 | 0.9 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.4% | 9.9% |
| Tax rate | 15.0% | 18.8% |
| Debt/Equity ratio | 0.03 | 0.03 |
| Cost of debt | 4.5% | 5.5% |
| After-tax WACC | 7.3% | 9.8% |
| Selected WACC | 8.5% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| CDNS | Cadence Design Systems Inc | 0.03 | 1.49 | 1.45 |
| ANSS | ANSYS Inc | 0.03 | 0.97 | 0.95 |
| AVLR | Avalara Inc | 1.73 | 0.98 | 0.41 |
| CSU.TO | Constellation Software Inc | 0.06 | 1.18 | 1.13 |
| CTXS | Citrix Systems Inc | 0.01 | 0.08 | 0.07 |
| DBX | Dropbox Inc | 0.33 | 0.78 | 0.62 |
| DDOG | Datadog Inc | 0.04 | 1.5 | 1.45 |
| INTU | Intuit Inc | 0.03 | 0.67 | 0.66 |
| RNG | RingCentral Inc | 0.65 | 1.16 | 0.76 |
| SPLK | Splunk Inc | 0.12 | 0.37 | 0.34 |
| Low | High | |
| Unlevered beta | 0.64 | 0.84 |
| Relevered beta | 0.66 | 0.85 |
| Adjusted relevered beta | 0.77 | 0.9 |
CDNS'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 CDNS:
cost_of_equity (8.65%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.77) + 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.