The WACC of MDC Holdings Inc (MDC) is 6.7%.
Range | Selected | |
Cost of equity | 6.9% - 8.9% | 7.9% |
Tax rate | 23.0% - 23.7% | 23.35% |
Cost of debt | 4.0% - 4.5% | 4.25% |
WACC | 5.9% - 7.5% | 6.7% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.65 | 0.73 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 6.9% | 8.9% |
Tax rate | 23.0% | 23.7% |
Debt/Equity ratio | 0.36 | 0.36 |
Cost of debt | 4.0% | 4.5% |
After-tax WACC | 5.9% | 7.5% |
Selected WACC | 6.7% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
MDC | MDC Holdings Inc | 0.36 | 2 | 1.57 |
CCS | Century Communities Inc | 0.78 | 0.54 | 0.34 |
DHI | D.R. Horton Inc | 0.14 | 0.37 | 0.34 |
KBH | KB Home | 0.42 | 0.54 | 0.41 |
LGIH | LGI Homes Inc | 1.18 | 0.84 | 0.44 |
MHO | M/I Homes Inc | 0.3 | 0.72 | 0.59 |
MTH | Meritage Homes Corp | 0.25 | 0.65 | 0.55 |
NVR | NVR Inc | 0.04 | 0.26 | 0.25 |
STHI | Sprout Tiny Homes Inc | 7.82 | -1.85 | -0.27 |
TPH | Tri Pointe Homes Inc (Delaware) | 0.33 | 0.63 | 0.5 |
Low | High | |
Unlevered beta | 0.38 | 0.46 |
Relevered beta | 0.48 | 0.6 |
Adjusted relevered beta | 0.65 | 0.73 |
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 MDC:
cost_of_equity (7.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.65) + 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.