Category	Low	High

Long-term bond rate	3.9%	4.4%
Equity market risk premium	4.6%	5.6%
Adjusted beta	0.85	0.92

Additional risk adjustments	0.0%	0.5%
Cost of equity	7.8%	10.0%

Tax rate	19.4%	20.9%
Debt/Equity ratio	0.32	0.32
Cost of debt	4.0%	4.5%

After-tax WACC	6.7%	8.4%


Selected WACC	7.6%

FANG WACC - Detailed calculations of Beta

		Debt/Equity		Unlevered
Peers	Company Name	ratio	Beta	beta

FANG	Diamondback Energy Inc	0.32	0.97	0.77
APA	APA Corp (US)	0.9	1.11	0.65
AR	Antero Resources Corp	0.12	1.04	0.96
COG	Cabot Oil & Gas Corp	0.13	-0.04	-0.03
DVN	Devon Energy Corp	0.44	0.79	0.58
EQT	EQT Corp	0.27	1.05	0.86
MRO	Marathon Oil Corp	0.34	0.32	0.25
MUR	Murphy Oil Corp	0.39	0.83	0.64
SWN	Southwestern Energy Co	0.5	0.63	0.45
TOU.TO	Tourmaline Oil Corp	0.05	0.83	0.8

	Low	High

Unlevered beta	0.61	0.7
Relevered beta	0.78	0.88
Adjusted relevered beta	0.85	0.92

FANG'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 FANG:

cost_of_equity (8.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.85) + 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.