WACC Builder
Everybody can quote the formula. Almost nobody can defend the inputs, which is exactly where the interview goes. Build the number from the ground up: take a raw beta through the Blume adjustment, unlever it and put it back on at a different capital structure, stack the premia on top of the risk-free rate, and watch what each choice does to a valuation at the other end.
The equity and country risk premiums are live, collected weekly from Damodaran’s published data. Everything else carries a note on where the real figure should come from, so you can replace it with something you can cite.
Debt looks cheap because interest is deductible. It is not free: more debt raises the levered beta, which raises the cost of equity right back.
Type a US ticker to fill the capital-structure weight, the tax rate and interest coverage from the latest 10-K, and to regress a beta from two years of weekly returns. The premia stay yours — those are judgements, not data.
Beta
Unsure what the number means, or why the same company prints a different one against a different index? Beta Refresher builds it from a regression first.
Bloomberg’s BETA screen puts the adjusted figure in the headline slot and most FactSet pulls do the same, usually without saying so. It has already been shrunk toward 1.0, so Blume is switched off here — applying it again would shrink it twice. The regression beta underneath must have been 1.15.
The default for US listings. A US company regressed against the S&P will show a beta near 1 almost by construction, because it is part of the index it is being measured against.
Hamada: βU = βL / (1 + (1 − t) × D/E). Unlevered is the risk of the business; levered adds the risk the financing brings. Relever at the structure you are valuing, not the peer’s.
Cost of equity
As at August 2026 · 10Y T-bond 4.74%. Forward-looking, backed out of the index level and expected cash flows rather than averaged from history. Damodaran
Live 10-year government yields from our Macro Chartbook. Match the currency of the cash flows you are discounting — a euro forecast discounted at a Treasury yield is simply the wrong number.
United States is rated Aa1, carrying a country risk premium of 0.23% on top of the mature-market base. Damodaran's figures, updated 2026-01-01. The judgement call is whether to apply it by country of listing or by where revenue is actually earned; revenue is the better answer and the harder one to compute.
On the size premium: Kroll publishes decile figures and plenty of valuations use them, so you should know how it works. Damodaran thinks the effect largely went away after the early 1980s and that bolting one on often double-counts risk the beta has already picked up. Either position is defensible. Having no view is not.
Cost of debt and structure
For a company that is rated but has nothing liquid trading. Take the issuer rating from Moody’s, S&P Global or Fitch — all three publish issuer ratings free after registration — and read the spread for that rating off a corporate index. Watch the currency and the maturity match.
▸Coverage-to-rating ladder
| Coverage ≥ | Rating | Spread |
|---|---|---|
| 8.5x | AAA / Aaa | +0.60% |
| 6.5x | AA / Aa2 | +0.80% |
| 5.5x | A+ / A1 | +1.00% |
| 4.25x | A / A2 | +1.10% |
| 3x | A− / A3 | +1.30% |
| 2.5x | BBB / Baa2 | +1.80% |
| 2.25x | BB+ / Ba1 | +2.50% |
| 2x | BB / Ba2 | +3.20% |
| 1.75x | B+ / B1 | +4.40% |
| 1.5x | B / B2 | +5.40% |
| 1.25x | B− / B3 | +6.60% |
| 0.8x | CCC / Caa | +9.50% |
| 0.65x | CC / Ca | +11.50% |
| 0.2x | C | +14.00% |
| — | D | +18.00% |
Coverage bands are Damodaran’s and hold up year to year. The spreads move with the credit cycle, so treat these as starting points and refresh them from his January update. Smaller companies are held to tighter bands than large caps for the same rating.
Weights must be market values — book equity is a historical accident. And the tax rate is the marginal one you expect on the next pound of profit, not whatever effective rate this year’s accounts happen to show.
What it does to a valuation
The whole answer rests on a spread of 5.55pp between the discount rate and growth. Half a point on the WACC moves the value about 10%.
Sensitivity
| β ↓ / leverage → | 0% | 15% | 30% | 45% | 60% |
|---|---|---|---|---|---|
| 0.6 | 7.3 | 6.9 | 6.6 | 6.2 | 5.9 |
| 0.8 | 8.1 | 7.6 | 7.2 | 6.7 | 6.2 |
| 1.0 | 9.0 | 8.4 | 7.8 | 7.1 | 6.5 |
| 1.2 | 9.8 | 9.1 | 8.3 | 7.6 | 6.9 |
| 1.4 | 10.7 | 9.8 | 8.9 | 8.1 | 7.2 |
| 1.6 | 11.5 | 10.5 | 9.5 | 8.5 | 7.5 |
Along a row, WACC barely moves with leverage: cheaper after-tax debt is offset by the higher levered beta it forces on the equity. Down a column, it moves a lot. Capital structure is second order. Business risk is first.
Where each number should come fromexpand
A long-dated government bond in the same currency as the cash flows. Ten-year is the convention. Discounting euro cash flows at a Treasury yield is simply the wrong number.
Live 10Y yields on our Macro ChartbookShown live above: 4.23% for the S&P 500 as at August 2026, from Damodaran's monthly implied series. Implied premiums are forward-looking; historical averages carry standard errors wide enough to swallow the estimate.
Damodaran current dataAlso live above — 178 countries, updated 2026-01-01. Built from a sovereign default spread scaled by relative equity-market volatility.
Country premium workbookEither a regression against a named index over a stated window, or bottom-up from a peer set. Bottom-up wins on precision: one regression beta has a wide standard error and averaging comparables collapses it. Always say which index and which window.
Betas by sectorKroll's CRSP-decile figures are the standard reference and widely used. Damodaran's counter-argument is that the effect faded after the early 1980s and that adding one often double-counts risk already in the beta. Know both sides.
Kroll cost of capitalYield to maturity on traded debt if there is any. If not, take the agency rating and read a spread off a corporate index. If unrated, build a synthetic rating from interest coverage. Never the coupon on existing debt.
Synthetic ratings and spreadsThe equity and country risk premiums above are collected weekly from Damodaran’s published workbooks by our open collector and republished with attribution. Everything else on this page starts at a plausible round number so the model has somewhere to begin. Those are not data. Replace them with sourced figures before the answer leaves your screen.
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