The WACC of Fortune Brands Home & Security Inc (FBHS) is 9.8%.
| Range | Selected | |
| Cost of equity | 10.50% - 13.30% | 11.90% |
| Tax rate | 21.60% - 22.30% | 21.95% |
| Cost of debt | 4.00% - 5.30% | 4.65% |
| WACC | 8.6% - 11.0% | 9.8% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 1.26 | 1.35 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.50% | 13.30% |
| Tax rate | 21.60% | 22.30% |
| Debt/Equity ratio | 0.34 | 0.34 |
| Cost of debt | 4.00% | 5.30% |
| After-tax WACC | 8.6% | 11.0% |
| Selected WACC | 9.8% | |
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 FBHS:
cost_of_equity (11.90%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (1.26) + 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.