Cost Of Capital Toolkit

The skill

Estimates discount rates and the optimal financing mix — riskfree rate in any currency, equity risk premium including country risk, bottom-up and total betas, synthetic credit ratings from interest coverage, cost of debt, market value of debt, WACC, the implied equity risk premium solved from current index levels, and the cost-of-capital schedule across debt ratios that locates the optimal debt ratio, with an APV cross-check and a stress test under rating constraints. Bundles Damodaran's rating and spread tables, Altman default probabilities, industry-average betas and multiples, and country risk premiums, each tagged with its vintage. Use when estimating a discount rate, WACC, hurdle rate, cost of equity or cost of debt, unlevering or relevering a beta, when a company has no credit rating, when estimating the equity risk premium priced into the market, when looking up a sector beta or country risk premium, when converting a rate between currencies, or when finding or stressing an optimal capital structure.

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