The WACC of Covanta Holding Corp (CVA) is 8.0%.
| Range | Selected | |
| Cost of equity | 8.10% - 11.00% | 9.55% |
| Tax rate | 27.00% - 27.00% | 27.00% |
| Cost of debt | 4.00% - 13.10% | 8.55% |
| WACC | 5.6% - 10.3% | 8.0% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.17 | 1.31 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.10% | 11.00% |
| Tax rate | 27.00% | 27.00% |
| Debt/Equity ratio | 0.95 | 0.95 |
| Cost of debt | 4.00% | 13.10% |
| After-tax WACC | 5.6% | 10.3% |
| Selected WACC | 8.0% | |
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 CVA:
cost_of_equity (9.55%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (1.17) + 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.