End Game

Variable
Number of firms
Beta
Cost of Equity

D/(D+E)

Cost of debt
After-tax Cost of Debt

Cost of Capital

Cost of Capital (local currency)

To estimate the hurdle rate (required return) on both equity and overall capital invested for firms.

Explanation
Number of firms in the indusry grouping.
Average regression beta across companies in the group.
Risk free Rate + Beta * Equity Risk Premium, in US $
Total Debt (including lease debt)/ (Total Debt (including lease debt)+
Market Cap), aggregated across all firms in group, with all numbers other
than market cap coming from most recent balance sheet; market cap is as
of last day of the most recent year.

Pre-tax cost of borrowing for sector, estimated based upon the standard
deviation of equity.
Pre-tax cost of borrowing (1- Marginal tax rate), in US $
Cost of Equity * (Equity/ (Debt + Equity)) + Cost of Debt (1- Marginal tax
rate) *(Debt/ (Debt + Equity)), with aggregated debt and market equity
values across all companies in the sector, using most recent balance sheet
for debt and most recent year-end for equity.

You can convert the $ cost of capital for a sector into any other currency,
if you can estimate an expected inflation rate for the local currency.
equity and overall capital invested for firms.

Why?
Law of large numbers?
Relative risk of sector
Required return on equity, given equity risk (beta).
Measure of debt used, as a proportion of overall funding (based upon market value)

This is an approximation, but the alternatives are not attractive. I could estimate the average cost of debt
across firms in the group, but many of them are unrated and there are outliers.
Interest saves you taxes, at the margin.
Required return on invested capital.

Required return on invested capital, converted into local currency.

Date updated: 5-Jan-24
Created by: Aswath Damodaran, [email protected]
What is this data? Cost of equity and capital (updateable)
Home Page: http://www.damodaran.com
Data website: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/data.html
Companies in each industry: https://pages.stern.nyu.edu/~adamodar/pc/datasets/indname.xls
Variable definitions: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/varia
To update this spreadsheet, enter the following
Long Term Treasury bond rate =
Risk Premium to Use for Equity =
Global Default Spread to add to cost of debt =
Do you want to use the marginal tax rate for cost of debt?
If yes, enter the marginal tax rate to use

These costs of capital are in US$. To convert to a different currency, please enter
Expected inflation rate in local currency =
Expected inflation rate in US $ =

Industry Name Number of Firms Beta

Investments & Asset Management 481 0.80
Machinery 911 1.06
Metals & Mining 331 1.27
Office Equipment & Services 71 0.85
Oil/Gas (Integrated) 16 0.98
Oil/Gas (Production and Exploration) 103 1.39
Oil/Gas Distribution 111 0.87
Oilfield Svcs/Equip. 225 0.91
Packaging & Container 320 0.81
Paper/Forest Products 188 0.92
Power 321 0.77
Precious Metals 62 1.52
Publishing & Newspapers 170 0.99
R.E.I.T. 213 0.67
Real Estate (Development) 773 1.01
Real Estate (General/Diversified) 218 0.98
Real Estate (Operations & Services) 374 0.86
Recreation 143 0.93
Reinsurance 29 1.16
Restaurant/Dining 158 1.02
Retail (Automotive) 107 0.86
Retail (Building Supply) 46 0.84
Retail (Distributors) 673 0.74
Retail (General) 146 1.09
Retail (Grocery and Food) 86 0.73
Retail (REITs) 40 0.81
Retail (Special Lines) 251 1.04
Rubber& Tires 72 1.05
Semiconductor 513 1.72
Semiconductor Equip 277 1.98
Shipbuilding & Marine 240 0.97
Shoe 58 0.75
Software (Entertainment) 66 1.80
Software (Internet) 42 1.13
Software (System & Application) 521 1.44
Steel 536 1.22
Telecom (Wireless) 63 0.89
Telecom. Equipment 299 1.29
Telecom. Services 140 0.82
Tobacco 31 0.44
Transportation 296 0.94
Transportation (Railroads) 15 0.93
Trucking 55 1.07
Utility (General) 14 0.64
Utility (Water) 71 0.66
Total Market 25637 1.02
Total Market (without financials) 23133 1.04
@stern.nyu.edu
ateable) Emerging Markets

damodar/New_Home_Page/data.html
damodar/pc/datasets/indname.xls
damodar/New_Home_Page/datafile/variable.htm

4.30% Standard Deviation

6.80%

NO
24.83%

Cost of Equity E/(D+E) Std Dev in Stock

9.77% 28.58% 32.18%
11.48% 88.24% 31.51%
12.91% 74.07% 33.31%
10.11% 86.47% 32.64%
10.98% 89.59% 25.64%
13.75% 74.69% 34.72%
10.24% 63.83% 28.43%
10.48% 69.34% 31.33%
9.84% 77.29% 28.93%
10.56% 52.23% 30.02%
9.54% 47.63% 25.38%
14.65% 76.18% 36.29%
11.06% 93.22% 33.43%
8.84% 58.43% 15.32%
11.18% 27.84% 32.68%
10.97% 48.62% 26.13%
10.15% 56.83% 29.75%
10.64% 82.04% 29.95%
12.22% 70.80% 24.52%
11.26% 85.13% 35.44%
10.15% 55.92% 31.09%
10.03% 74.61% 29.71%
9.35% 49.76% 35.17%
11.73% 70.28% 29.10%
9.27% 71.81% 28.37%
9.82% 59.26% 13.51%
11.39% 79.73% 32.88%
11.47% 73.80% 26.80%
16.00% 90.14% 32.38%
17.78% 89.83% 33.20%
10.88% 67.59% 29.92%
9.37% 82.58% 31.34%
16.53% 88.21% 40.82%
12.01% 84.94% 37.15%
14.08% 95.91% 38.89%
12.62% 68.10% 32.09%
10.38% 71.56% 25.04%
13.07% 88.37% 34.66%
9.85% 69.66% 26.33%
7.30% 98.69% 25.06%
10.72% 61.80% 29.03%
10.60% 76.37% 24.33%
11.60% 44.13% 38.43%
8.62% 74.91% 22.90%
8.77% 49.00% 21.51%
11.24% 60.78% 31.50%
11.40% 72.48% 31.71%
 Notes
Pricing ratios (or multiples) can be used to price companies,
ing Markets with the end game of determining whether they are under or
over priced.
YouTube Video explaining estimation choices and process.

Cost of Debt Lookup Table (based on std dev in stock prices)

Standard Deviation Basis Spread
0 0.25 0.62%
0.250001 0.5 1.21%
0.500001 0.65 1.47%
0.650001 0.8 2.21%
0.800001 0.9 3.61%
0.900001 1 5.24%
1.000001 10 8.51%

Cost of Debt Tax Rate After-tax Cost of Debt D/(D+E) Cost of Capital
5.51% 35.00% 3.58% 71.42% 5.35%
5.51% 12.27% 4.83% 11.76% 10.70%
5.51% 12.49% 4.82% 25.93% 10.81%
5.51% 17.33% 4.55% 13.53% 9.36%
5.51% 26.22% 4.06% 10.41% 10.26%
5.51% 17.47% 4.54% 25.31% 11.42%
5.51% 13.51% 4.76% 36.17% 8.26%
5.51% 14.38% 4.71% 30.66% 8.71%
5.51% 14.66% 4.70% 22.71% 8.67%
5.51% 11.39% 4.88% 47.77% 7.85%
5.51% 15.86% 4.63% 52.37% 6.97%
5.51% 14.32% 4.72% 23.82% 12.28%
5.51% 10.63% 4.92% 6.78% 10.64%
4.92% 3.38% 4.76% 41.57% 7.14%
5.51% 14.71% 4.70% 72.16% 6.50%
5.51% 13.32% 4.77% 51.38% 7.78%
5.51% 13.30% 4.77% 43.17% 7.83%
5.51% 11.52% 4.87% 17.96% 9.60%
4.92% 11.05% 4.38% 29.20% 9.93%
5.51% 12.50% 4.82% 14.87% 10.30%
5.51% 16.21% 4.61% 44.08% 7.71%
5.51% 14.52% 4.71% 25.39% 8.68%
5.51% 13.63% 4.75% 50.24% 7.04%
5.51% 15.36% 4.66% 29.72% 9.63%
5.51% 16.28% 4.61% 28.19% 7.96%
4.92% 5.64% 4.65% 40.74% 7.71%
5.51% 14.88% 4.69% 20.27% 10.03%
5.51% 17.37% 4.55% 26.20% 9.66%
5.51% 7.64% 5.08% 9.86% 14.92%
5.51% 11.22% 4.89% 10.17% 16.47%
5.51% 13.50% 4.76% 32.41% 8.90%
5.51% 14.16% 4.73% 17.42% 8.56%
5.51% 10.76% 4.91% 11.79% 15.16%
5.51% 9.56% 4.98% 15.06% 10.96%
5.51% 8.43% 5.04% 4.09% 13.71%
5.51% 13.64% 4.75% 31.90% 10.11%
5.51% 19.05% 4.46% 28.44% 8.70%
5.51% 7.87% 5.07% 11.63% 12.14%
5.51% 14.13% 4.73% 30.34% 8.30%
5.51% 22.09% 4.29% 1.31% 7.26%
5.51% 15.19% 4.67% 38.20% 8.41%
4.92% 24.22% 3.73% 23.63% 8.98%
5.51% 13.97% 4.74% 55.87% 7.77%
4.92% 14.48% 4.21% 25.09% 7.52%
4.92% 16.15% 4.13% 51.00% 6.40%
5.51% 13.02% 4.79% 39.22% 8.71%
5.51% 12.85% 4.80% 27.52% 9.58%
Cost of Capital
(Local
Currency)
5.35%
10.70%
10.81%
9.36%
10.26%
11.42%
8.26%
8.71%
8.67%
7.85%
6.97%
12.28%
10.64%
7.14%
6.50%
7.78%
7.83%
9.60%
9.93%
10.30%
7.71%
8.68%
7.04%
9.63%
7.96%
7.71%
10.03%
9.66%
14.92%
16.47%
8.90%
8.56%
15.16%
10.96%
13.71%
10.11%
8.70%
12.14%
8.30%
7.26%
8.41%
8.98%
7.77%
7.52%
6.40%
8.71%
9.58%