Example of WACC calculation for oil and gas project in USA
11/08/2019
Example of WACC calculation
Sector: oil and gas production and exploration
Location of project: United States
Currency of investment: USD
IndicatorSource of information2019
Tax rate of United Stateshttps://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-corporate-tax-rates.pdf21.0%
Cost of Equity
Risk-free rate in USDhttp://pages.stern.nyu.edu/~adamodar/2.62%
Equity risk premiumhttp://pages.stern.nyu.edu/~adamodar/4.19%
Unlevered beta for oil and gashttp://pages.stern.nyu.edu/~adamodar/1.03
Debt/Equity for oil and gashttp://pages.stern.nyu.edu/~adamodar/0.55
Relevered beta = Unlevered beta for oil and gas * (1+(1-tax rate) * Debt/Equity for oil and gas)1.48
Specific riskAssumption2.0%
Cost of Equity in USD10.8%
Cost of Debt in USD
Cost of DebtAssumption12.0%
After-tax cost of debt = Cost of Debt * (1 - Tax rate)9.5%
Capital structure
Weight of equity as % of capital = 1 - Weight of debt as % of capital64.5%
Weight of debt as % of capital = Debt/Equity / (1 + Debt/Equity )35.5%
WACC in USD = Weight of equity as % of capital * Cost of Equity in USD + Weight of debt as % of capital * After-tax cost of debt10.3%