KMX
Carmax Inc
Price:  
66.71 
USD
Volume:  
2,086,353.00
United States | Specialty Retail
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Carmax WACC - Weighted Average Cost of Capital

The WACC of Carmax Inc (KMX) is 6.0%.

The Cost of Equity of Carmax Inc (KMX) is 7.95%.
The Cost of Debt of Carmax Inc (KMX) is 6.55%.

Range Selected
Cost of equity 7.00% - 8.90% 7.95%
Tax rate 23.50% - 24.40% 23.95%
Cost of debt 4.00% - 9.10% 6.55%
WACC 4.4% - 7.6% 6.0%
WACC

Carmax WACC calculation

Category Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.68 0.72
Additional risk adjustments 0.0% 0.5%
Cost of equity 7.00% 8.90%
Tax rate 23.50% 24.40%
Debt/Equity ratio 1.85 1.85
Cost of debt 4.00% 9.10%
After-tax WACC 4.4% 7.6%
Selected WACC 6.0%

Carmax'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 Carmax:

cost_of_equity (7.95%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.68) + 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.