The WACC of Norfolk Southern Corp (NSC) is 7.6%.
Range | Selected | |
Cost of equity | 7.6% - 9.9% | 8.75% |
Tax rate | 21.1% - 21.2% | 21.15% |
Cost of debt | 5.0% - 5.0% | 5% |
WACC | 6.7% - 8.5% | 7.6% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.8 | 0.9 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 7.6% | 9.9% |
Tax rate | 21.1% | 21.2% |
Debt/Equity ratio | 0.32 | 0.32 |
Cost of debt | 5.0% | 5.0% |
After-tax WACC | 6.7% | 8.5% |
Selected WACC | 7.6% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
NSC | Norfolk Southern Corp | 0.32 | 0.83 | 0.66 |
CNR.TO | Canadian National Railway Co | 0.23 | 0.63 | 0.53 |
CP.TO | Canadian Pacific Railway Ltd | 0.22 | 0.61 | 0.52 |
CSX | CSX Corp | 0.32 | 0.73 | 0.59 |
JBHT | J B Hunt Transport Services Inc | 0.11 | 0.77 | 0.71 |
KSU | Kansas City Southern | 0.14 | 1.09 | 0.98 |
ODFL | Old Dominion Freight Line Inc | 0 | 1.04 | 1.04 |
TFII.TO | TFI International Inc | 0.41 | 1.08 | 0.81 |
UNP | Union Pacific Corp | 0.24 | 0.63 | 0.53 |
URAL | United Rail Inc | 76229.77 | 0.58 | 0 |
Low | High | |
Unlevered beta | 0.57 | 0.68 |
Relevered beta | 0.7 | 0.85 |
Adjusted relevered beta | 0.8 | 0.9 |
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 NSC:
cost_of_equity (8.75%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.8) + 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.