OTIC WACC - Weighted Average Cost of Capital
The WACC of Otonomy Inc (OTIC) is 5.8%.
| Range | Selected | |
| Cost of equity | 6.2% - 8.4% | 7.3% |
| Tax rate | 26.2% - 27.0% | 26.6% |
| Cost of debt | 7.0% - 7.0% | 7% |
| WACC | 5.5% - 6.1% | 5.8% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.5 | 0.64 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.2% | 8.4% |
| Tax rate | 26.2% | 27.0% |
| Debt/Equity ratio | 2.47 | 2.47 |
| Cost of debt | 7.0% | 7.0% |
| After-tax WACC | 5.5% | 6.1% |
| Selected WACC | 5.8% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| OTIC | Otonomy Inc | 2.47 | 1.53 | 0.55 |
| AGRX | Agile Therapeutics Inc | 0.16 | -0.34 | -0.3 |
| AKTX | Akari Therapeutics PLC | 0.1 | 0.26 | 0.25 |
| AXIM | Axim Biotechnologies Inc | 2.55 | 0.2 | 0.07 |
| BMY | Bristol-Myers Squibb Co | 0.52 | 0.13 | 0.09 |
| BUDZ | Weed Inc | 0.1 | -0.36 | -0.34 |
| HEPA | Hepion Pharmaceuticals Inc | 3.39 | 0.37 | 0.11 |
| JNJ | Johnson & Johnson | 0.1 | 0.1 | 0.09 |
| LQDA | Liquidia Corp | 0.11 | 1.89 | 1.75 |
| NUMI.V | Numinus Wellness Inc | 0 | 1.05 | 1.05 |
| Low | High | |
| Unlevered beta | 0.09 | 0.16 |
| Relevered beta | 0.25 | 0.46 |
| Adjusted relevered beta | 0.5 | 0.64 |
OTIC'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 OTIC:
cost_of_equity (7.30%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.5) + 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.