COST OF CAPITAL · BETA
What return does an investment need?
Compare weighted average cost of capital (WACC) scenarios using the Commerce Commission's simplified method. Change any input; the results update as you type.
How this is worked out
The cost of equity uses the simplified Brennan–Lally capital asset pricing model, as used by the New Zealand Commerce Commission. Equity beta is the asset beta adjusted for debt, assuming a debt beta of zero. The cost of debt is reduced by the corporate tax rate. WACC weights the two by leverage (debt as a share of total value).
The Mid figures are illustrative, not a Commerce Commission determination or advice for any business.
- Post-tax cost of debt = kd × (1 − tc)
- Equity beta = asset_beta / (1 − leverage)
- Post-tax cost of equity = rf × (1 − ti) + equity_beta × tamrp
- WACC (post-tax) = (1 − leverage) × cost_of_equity + leverage × kd × (1 − tc)
rf: risk-free rate; tamrp: tax-adjusted market risk premium; tc: corporate tax rate; ti: investor marginal tax rate; kd: pre-tax cost of debt. Formulas use rates as fractions. Debt issuance and swap costs are excluded. CSV percentages are numbers (5.15 means 5.15%); results are unrounded.