The WACC of Workday Inc (WDAY) is 8.2%.
Range | Selected | |
Cost of equity | 6.60% - 10.10% | 8.35% |
Tax rate | 26.20% - 27.00% | 26.60% |
Cost of debt | 4.00% - 5.10% | 4.55% |
WACC | 6.5% - 9.8% | 8.2% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.6 | 0.93 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 6.60% | 10.10% |
Tax rate | 26.20% | 27.00% |
Debt/Equity ratio | 0.04 | 0.04 |
Cost of debt | 4.00% | 5.10% |
After-tax WACC | 6.5% | 9.8% |
Selected WACC | 8.2% | |
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 Workday:
cost_of_equity (8.35%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.6) + 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.