Category	Low	High

Long-term bond rate	3.9%	4.4%
Equity market risk premium	4.6%	5.6%
Adjusted beta	0.7	0.74

Additional risk adjustments	0.0%	0.5%
Cost of equity	7.1%	9.0%

Tax rate	21.3%	23.2%
Debt/Equity ratio	0.43	0.43
Cost of debt	5.0%	5.0%

After-tax WACC	6.1%	7.4%


Selected WACC	6.8%

KBH WACC - Detailed calculations of Beta

		Debt/Equity		Unlevered
Peers	Company Name	ratio	Beta	beta

KBH	KB Home	0.43	0.45	0.34
BLD	TopBuild Corp	0.16	0.8	0.72
CCS	Century Communities Inc	0.86	0.38	0.23
HOV	Hovnanian Enterprises Inc	1.49	0.87	0.41
LGIH	LGI Homes Inc	1.11	0.65	0.35
MDC	MDC Holdings Inc	0.36	2	1.57
MHO	M/I Homes Inc	0.33	0.63	0.5
MTH	Meritage Homes Corp	0.27	0.52	0.43
TMHC	Taylor Morrison Home Corp	0.36	0.63	0.5
TPH	Tri Pointe Homes Inc (Delaware)	0.35	0.53	0.42

	Low	High

Unlevered beta	0.41	0.46
Relevered beta	0.55	0.61
Adjusted relevered beta	0.7	0.74

KBH'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 KBH:

cost_of_equity (8.05%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.7) + 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.