The WACC of Carmax Inc (KMX) is 5.5%.
Range | Selected | |
Cost of equity | 7.1% - 9.2% | 8.15% |
Tax rate | 23.5% - 24.4% | 23.95% |
Cost of debt | 4.0% - 7.0% | 5.5% |
WACC | 4.4% - 6.6% | 5.5% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.71 | 0.77 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 7.1% | 9.2% |
Tax rate | 23.5% | 24.4% |
Debt/Equity ratio | 1.93 | 1.93 |
Cost of debt | 4.0% | 7.0% |
After-tax WACC | 4.4% | 6.6% |
Selected WACC | 5.5% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
KMX | Carmax Inc | 1.93 | 0.52 | 0.21 |
AN | AutoNation Inc | 0.57 | 0.93 | 0.65 |
AZO | Autozone Inc | 0.15 | 0.3 | 0.27 |
BBBY | Bed Bath & Beyond Inc | 54.22 | 1.54 | 0.04 |
KXIN | Kaixin Auto Holdings | 0.09 | -0.31 | -0.29 |
LAD | Lithia Motors Inc | 1.45 | 0.84 | 0.4 |
LOTZ | Carlotz Inc | 2.29 | 0.65 | 0.24 |
MUSA | Murphy Usa Inc | 0.22 | 0.31 | 0.26 |
ORLY | O'Reilly Automotive Inc | 0.07 | 0.21 | 0.2 |
PAG | Penske Automotive Group Inc | 0.49 | 0.67 | 0.49 |
Low | High | |
Unlevered beta | 0.23 | 0.26 |
Relevered beta | 0.57 | 0.66 |
Adjusted relevered beta | 0.71 | 0.77 |
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 Carmax:
cost_of_equity (8.15%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.71) + 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.