Citi Investment Banking Pitch Book
WACC Calculation
WACC Calculation Inputs
Target Capital Structure (Net Debt / Total Capital)(¹): 20.0 10.0 %
After-Tax Cost of Debt:
Expected Long-Term Yield(2):
- Current Statutory Marginal Tax Rate:
Cost of Equity:
Risk-Free Rate (20-Year CMT Bond):
Assumed Equity Market Risk Premium - low:
Assumed Equity Market Risk Premium - high:
6.5% Equity Market Risk Premium 20.9 -
7.5% Equity Market Risk Premium 21.9 -
Relevered Equity Beta:
- Unlevered Asset Beta:
- Implied Net Debt / Equity Ratio:
Small Cap Risk Premium:
High Yield Issuer? (Y/N)
16
0.94-
(1)
(2)
(3)
4.9 %
6.6 %
26.0 %
20.6 %
21.5 %
3.7 %
6.5 %
7.5%
0.88
0.84
25.0 11.1 %
11.2 %
Weighted Average Cost of Capital:
17.7
17.7
18.5
6.5% Equity Market Risk Premium
7.5% Equity Market Risk Premium
The low-end of the WACC is based upon the low-end of the equity market
risk premium (6.5%) and the high-end of the net debt / total capital ratio. The
high-end is based on the high-end of the equity market risk premium (7.5%)
and the low-end of the capital structure.
Y
19.8 %
19.0 %
19.8 %
Cost of Net Debt-Related Metrics
AlerisLife
Cost of Equity-Related Metrics
AlerisLife
Source: ALR Management, public filings, Wall Street Research, Bloomberg and FactSet as of 02/02/2023.
Based on estimated capital structure of senior housing operators.
Based on High Yield BB Index as of 02/02/2023.
Adj. Equity Beta as of 04/02/2019 when ALR announced the restructuring of its management agreements with DHC.
Value of
Net Debt
$24
Adjusted
Equity Beta
(Bloomberg)
1.197
Market Value
of Equity
$27
Beta
Estimation
Period (Yrs)
3.8 (3)
Capital Structure
Net Debt / Total
Capital Ratio
47.3%
High
Yield Issuer
Y
Debt
Beta
0.3
Current Statutory Long Term
Marginal Tax Rate Yield(2)
26.0%
Unlevering
Tax Rate
26.0
6.6%
Unlevered
Asset Beta
0.839
Unlevering tax rate represents a blended average tax rate based on the number of days for which different statutory marginal tax
rates were in effect during the beta estimation period.
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