Breakdown
How it works
Cost of equity comes from CAPM: risk-free rate + beta × equity risk premium (add a country risk premium for frontier markets). Cost of debt is the yield on the company's borrowing, reduced by the tax shield. Weight each by market value.
Formula
Ke = Rf + β × ERP
Kd(after tax) = Kd × (1 − t)
WACC = E/V × Ke + D/V × Kd(after tax)
Worked example
60m equity, 40m debt, 4.2% Rf, 1.2 beta, 5.5% ERP, 6% Kd, 9% tax: Ke 10.8%, Kd 5.46% → WACC 8.66%.
Frequently asked questions
Where do I get beta?
Bloomberg, Yahoo Finance (5-year monthly), or Damodaran's industry betas re-levered for your capital structure.
What equity risk premium?
4.5–6% for developed markets; add 1–3% for GCC depending on the country and sector (Damodaran publishes country risk premiums).
Should I use book or market values?
Market values. Book debt is usually a fair proxy for market debt; book equity is not.