CP.TO WACC - Weighted Average Cost of Capital

The WACC of Canadian Pacific Railway Ltd (CP.TO) is 7.0%.

The Cost of Equity of Canadian Pacific Railway Ltd (CP.TO) is 7.90%.

The Cost of Debt of Canadian Pacific Railway Ltd (CP.TO) is 4.25%.

	Range	Selected
Cost of equity	6.80% - 9.00%	7.90%
Tax rate	21.80% - 22.80%	22.30%
Cost of debt	4.00% - 4.50%	4.25%
WACC	6.1% - 7.9%	7.0%

WACC

CP.TO WACC calculation

Category	Low	High

Long-term bond rate	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	0.71	0.79

Additional risk adjustments	0.0%	0.5%
Cost of equity	6.80%	9.00%

Tax rate	21.80%	22.80%
Debt/Equity ratio	0.23	0.23
Cost of debt	4.00%	4.50%

After-tax WACC	6.1%	7.9%


Selected WACC	7.0%

CP.TO'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 CP.TO:

cost_of_equity (7.90%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.71) + 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.