Gap WACC - Weighted Average Cost of Capital
The WACC of Gap Inc (GPS) is 10.6%.
| Range | Selected | |
| Cost of equity | 10.1% - 13.2% | 11.65% |
| Tax rate | 27.2% - 28.1% | 27.65% |
| Cost of debt | 4.6% - 7.2% | 5.9% |
| WACC | 9.1% - 12.1% | 10.6% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.35 | 1.48 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.1% | 13.2% |
| Tax rate | 27.2% | 28.1% |
| Debt/Equity ratio | 0.16 | 0.16 |
| Cost of debt | 4.6% | 7.2% |
| After-tax WACC | 9.1% | 12.1% |
| Selected WACC | 10.6% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| GPS | Gap Inc | 0.16 | 1.43 | 1.28 |
| ANF | Abercrombie & Fitch Co | 1.14 | 1.03 | 0.57 |
| BURL | Burlington Stores Inc | 0.11 | 0.66 | 0.61 |
| CAL | Caleres Inc | 0.43 | 0.52 | 0.4 |
| DBI | Designer Brands Inc | 3.1 | 1.26 | 0.39 |
| FL | Foot Locker Inc | 0.39 | 0.95 | 0.74 |
| GCO | Genesco Inc | 1.13 | 1.98 | 1.09 |
| GES | Guess? Inc | 0.89 | 0.61 | 0.37 |
| LB | L Brands Inc | 0.07 | 2.17 | 2.06 |
| ROST | Ross Stores Inc | 0.05 | 0.5 | 0.48 |
| Low | High | |
| Unlevered beta | 0.53 | 0.66 |
| Relevered beta | 1.52 | 1.72 |
| Adjusted relevered beta | 1.35 | 1.48 |
Gap'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 Gap:
cost_of_equity (11.65%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.35) + 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.