Otis WACC - Weighted Average Cost of Capital
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 |
Otis'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 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.