Weighted Average Cost of Capital
Build the discount rate from peers rather than choosing it.
Seat
IB · ER/HF
Level
Analyst / Associate
Runtime
~25 min
Output
Cost of capital page: Excel + slide
What this helps you accomplish
Peer betas unlevered and relevered at the target capital structure, the cost of equity through CAPM, the after-tax cost of debt, and the weighted rate, with a grid across beta and the equity risk premium. The equity risk premium moves the answer more than anything else on the page and it is usually house policy rather than data, which is exactly why it belongs in the open.
What you get
Not a description of an output. The file itself, in the conventions a banker, a PE associate or a hedge fund analyst already reads without being told.
{TICKER}_wacc.xlsx
Excel workbook
- 1
Inputs
The risk-free rate, the equity risk premium, the target capital structure, the tax rate and the sensitivity steps
- 2
Peer betas ($mm)
Levered beta, total debt, market capitalisation, tax rate and debt to equity per peer, to an unlevered beta for each
- 3
Cost of capital build-up
Median unlevered beta relevered at the target structure, CAPM cost of equity, after-tax cost of debt and the weighted rate
- 4
Sensitivity: relevered beta by equity risk premium
A grid of the resulting rate, so the two assumptions doing the work are visible together
- 5
PowerPoint
One slide: peer betas on the left, the build-up on the right, and the rate as a headline number
Where the numbers come from
From the filings: peer debt and market capitalisation, and the target’s own debt and interest cost. Every filed figure resolves to its form, period, page, the printed value and a link into the filing on EDGAR. Not from filings: betas, which arrive at 1.00 until you supply them, the risk-free rate and the equity risk premium. Assumptions are listed on the slide’s source line under "Not from filings", so an assumed input is never read as a filed one.
Run it yourself
python3 skills/deal-slides/build.py wacc --ticker BSX --peers MDT,SYK,EWDelegate · Verify · Decide
The core L3VLUP principle: AI output is never automatically correct. Know what to hand off, what to check, and what only you can own.
Delegate
AI is good enough to do this.
- • Pulling peer debt and market capitalisation with a citation on each
- • Unlevering each peer beta and relevering the median at the target structure
- • The CAPM build-up, the after-tax cost of debt and the weighted rate as live formulas
- • Building the branded slide with the peer table and the build-up
Verify
AI accelerates you here, but a professional checks the work.
- • That each peer’s beta names its measurement period and index
- • That net cash peers unlever to a beta equal to their levered beta, and that no debt to equity column shows a negative by accident
- • That the after-tax cost of debt uses a marginal rate rather than a distorted effective one
- • That the relevered beta and the resulting rate match the discounted cash flow page
Decide
Judgment the human owns. This is the skill.
- • The peer set the beta is drawn from
- • The equity risk premium, and whether to state it as house policy
- • The target capital structure and the period the beta is measured over
- • Whether a size or country premium belongs on the build-up at all
Inputs required
- Company name or ticker
- The peer tickers
- Peer betas, the risk-free rate and the equity risk premium
- The target capital structure, if it is not today’s
- Your own numbers where you would rather not use the default
The workflow
- 1
Resolve the company and the peers
Peer debt and market capitalisation come from each peer’s own filings, so the unlevering is done on real capital structures.
- 2
Supply the betas
They arrive at 1.00, which is a placeholder rather than an estimate. Put in the measured betas and say over what period and against which index.
- 3
Set the market inputs
The risk-free rate with its date, and the equity risk premium with its source, whether that is house policy or a named survey.
- 4
Choose the target structure
The relevering happens at the structure the business will run, not necessarily the one it has today. If they differ, the notes say why.
- 5
Build and reconcile
The rate here is the rate the discounted cash flow uses. If the two pages disagree, the book has a problem before anyone opens it.
Run this skill
Any listed company, anywhere. Ticker or name.
Quality checklist
The output isn’t done until every box ticks.
- verify reports zero errors and every derived cell is a formula on blue inputs
- Units are on every table header and the subtitle names the pricing date
- The risk-free rate and its date are on the slide, and the equity risk premium source is in the source line
- The relevered beta and the rate agree with the discounted cash flow page
- The target debt to capital is a sustainable structure, and the notes say why it differs from today’s if it does
- Net cash peers unlever to a beta equal to their levered beta