The WACC of Occidental Petroleum Corp (OXY) is 5.7%.
| Range | Selected | |
| Cost of equity | 5.50% - 6.80% | 6.15% |
| Tax rate | 27.00% - 28.60% | 27.80% |
| Cost of debt | 5.30% - 7.00% | 6.15% |
| WACC | 5.0% - 6.3% | 5.7% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -0.19 | -0.09 |
| Additional risk adjustments | 2.5% | 3.0% |
| Cost of equity | 5.50% | 6.80% |
| Tax rate | 27.00% | 28.60% |
| Debt/Equity ratio | 0.4 | 0.4 |
| Cost of debt | 5.30% | 7.00% |
| After-tax WACC | 5.0% | 6.3% |
| Selected WACC | 5.7% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for OXY:
cost_of_equity (6.15%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-0.19) + risk_adjustments (2.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.