PAG WACC - Weighted Average Cost of Capital
The WACC of Penske Automotive Group Inc (PAG) is 6.3%.
| Range | Selected | |
| Cost of equity | 6.7% - 8.7% | 7.7% |
| Tax rate | 25.4% - 25.5% | 25.45% |
| Cost of debt | 4.0% - 5.1% | 4.55% |
| WACC | 5.5% - 7.1% | 6.3% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.62 | 0.68 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.7% | 8.7% |
| Tax rate | 25.4% | 25.5% |
| Debt/Equity ratio | 0.49 | 0.49 |
| Cost of debt | 4.0% | 5.1% |
| After-tax WACC | 5.5% | 7.1% |
| Selected WACC | 6.3% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| PAG | Penske Automotive Group Inc | 0.49 | 0.63 | 0.46 |
| AAP | Advance Auto Parts Inc | 0.58 | 0.53 | 0.37 |
| AN | AutoNation Inc | 0.57 | 0.89 | 0.62 |
| AZO | Autozone Inc | 0.15 | 0.25 | 0.23 |
| GPI | Group 1 Automotive Inc | 0.82 | 0.62 | 0.38 |
| KMX | Carmax Inc | 1.76 | 0.48 | 0.21 |
| LAD | Lithia Motors Inc | 1.44 | 0.81 | 0.39 |
| MUSA | Murphy Usa Inc | 0.22 | 0.27 | 0.23 |
| ORLY | O'Reilly Automotive Inc | 0.07 | 0.18 | 0.17 |
| SAH | Sonic Automotive Inc | 1.31 | 0.91 | 0.46 |
| Low | High | |
| Unlevered beta | 0.32 | 0.38 |
| Relevered beta | 0.43 | 0.52 |
| Adjusted relevered beta | 0.62 | 0.68 |
PAG'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 PAG:
cost_of_equity (7.70%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.62) + 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.