Category	Low	High

Long-term bond rate	3.9%	4.4%
Equity market risk premium	4.6%	5.6%
Adjusted beta	0.68	0.71

Additional risk adjustments	0.0%	0.5%
Cost of equity	7.0%	8.8%

Tax rate	22.3%	23.0%
Debt/Equity ratio	0.15	0.15
Cost of debt	5.0%	5.0%

After-tax WACC	6.6%	8.2%


Selected WACC	7.4%

DHI WACC - Detailed calculations of Beta

		Debt/Equity		Unlevered
Peers	Company Name	ratio	Beta	beta

DHI	D.R. Horton Inc	0.15	0.34	0.31
KBH	KB Home	0.46	0.5	0.37
LEN	Lennar Corp	0.15	0.52	0.46
MDC	MDC Holdings Inc	0.36	2	1.56
MTH	Meritage Homes Corp	0.27	0.61	0.51
NVR	NVR Inc	0.04	0.25	0.24
PHM	Pultegroup Inc	0.1	0.54	0.5
TMHC	Taylor Morrison Home Corp	0.34	0.69	0.55
TOL	Toll Brothers Inc	0.25	0.88	0.74
TPH	Tri Pointe Homes Inc (Delaware)	0.34	0.6	0.47

	Low	High

Unlevered beta	0.47	0.5
Relevered beta	0.52	0.57
Adjusted relevered beta	0.68	0.71

DHI'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 DHI:

cost_of_equity (7.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.68) + 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.