The WACC of Otis Worldwide Corp (OTIS) is 8.8%.
Range | Selected | |
Cost of equity | 8.4% - 11.5% | 9.95% |
Tax rate | 27.0% - 27.5% | 27.25% |
Cost of debt | 4.0% - 4.6% | 4.3% |
WACC | 7.5% - 10.1% | 8.8% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 1 | 1.19 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 8.4% | 11.5% |
Tax rate | 27.0% | 27.5% |
Debt/Equity ratio | 0.21 | 0.21 |
Cost of debt | 4.0% | 4.6% |
After-tax WACC | 7.5% | 10.1% |
Selected WACC | 8.8% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
OTIS | Otis Worldwide Corp | 0.21 | 0.5 | 0.43 |
DOV | Dover Corp | 0.11 | 1.22 | 1.12 |
FTV | Fortive Corp | 0.22 | 1.03 | 0.89 |
IR | Ingersoll Rand Inc | 0.14 | 1.22 | 1.11 |
ITW | Illinois Tool Works Inc | 0.11 | 0.77 | 0.72 |
PH | Parker-Hannifin Corp | 0.11 | 1.36 | 1.25 |
PNR | Pentair PLC | 0.09 | 1.22 | 1.14 |
SNA | Snap-On Inc | 0.07 | 0.81 | 0.78 |
SWK | Stanley Black & Decker Inc | 0.56 | 1.16 | 0.82 |
XYL | Xylem Inc | 0.07 | 1.16 | 1.11 |
Low | High | |
Unlevered beta | 0.86 | 1.11 |
Relevered beta | 1 | 1.28 |
Adjusted relevered beta | 1 | 1.19 |
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 Otis:
cost_of_equity (9.95%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1) + 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.