Chirayuthchai TraisaengsatheanStrategic Finance for Property Development
THEN

WACC and cost of equity (CAPM)

Calculates cost of equity using CAPM, after-tax cost of debt and WACC, for use as the project's discount rate or hurdle rate

CalculatorStrategic Financial Management Handbook

Extracted from Real Estate Project Strategic Financial Management Handbook: A Practical Guide · Appendix M Financial Formulas
Hypothetical example: risk-free rate 2.8%, beta 1.2, market risk premium 7%, project-specific premium 2%, interest 6.5%, CIT 20%, debt to total capital 60%

Cost of Equity (CAPM)
% e.g. the long-term government bond yield
times
%
%
Cost of Debt
%
%
Capital structure
%
WACC–
  • Cost of Equity–
  • After-tax cost of debt–
  • D/E–
Calculation
WACC by debt proportion
Debt/total capitalWACC

Results are calculations for learning purposes. The figures entered are hypothetical examples, not real project data.

Formula

Re = Rf + β × (Rm − Rf) + Premium
WACC = (E/V × Re) + (D/V × Rd × (1 − T))

Notes

  • Property development projects carry higher risk than companies with recurring revenue, so a project-specific premium is commonly added
  • If you are evaluating Equity IRR, compare it with the cost of equity, not WACC
  • If you are evaluating Project IRR or the NPV of cash flow before debt, use WACC

Tools to use together