Vertex WACC - Weighted Average Cost of Capital
The WACC of Vertex Pharmaceuticals Inc (VRTX) is 8.5%.
| Range | Selected | |
| Cost of equity | 7.3% - 9.7% | 8.5% |
| Tax rate | 16.1% - 19.0% | 17.55% |
| Cost of debt | 4.5% - 8.8% | 6.65% |
| WACC | 7.3% - 9.7% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.74 | 0.86 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.3% | 9.7% |
| Tax rate | 16.1% | 19.0% |
| Debt/Equity ratio | 0 | 0 |
| Cost of debt | 4.5% | 8.8% |
| After-tax WACC | 7.3% | 9.7% |
| Selected WACC | 8.5% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| VRTX | Vertex Pharmaceuticals Inc | 0 | 0.68 | 0.68 |
| ALXN | Alexion Pharmaceuticals Inc | 0.07 | 1.25 | 1.18 |
| BBIO | BridgeBio Pharma Inc | 0.34 | 1.03 | 0.81 |
| BCRX | BioCryst Pharmaceuticals Inc | 0.4 | 1.06 | 0.8 |
| BIIB | Biogen Inc | 0.36 | 0.42 | 0.32 |
| BMRN | Biomarin Pharmaceutical Inc | 0.05 | 0.53 | 0.51 |
| EXAS | Exact Sciences Corp | 0.27 | 0.28 | 0.23 |
| INSM | Insmed Inc | 0.1 | 0.85 | 0.79 |
| NVAX | Novavax Inc | 0.24 | 1.62 | 1.36 |
| OPK | OPKO Health Inc | 0.53 | 0.12 | 0.08 |
| Low | High | |
| Unlevered beta | 0.61 | 0.79 |
| Relevered beta | 0.61 | 0.79 |
| Adjusted relevered beta | 0.74 | 0.86 |
Vertex'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 Vertex:
cost_of_equity (8.50%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.74) + 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.