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1/10/2022
Corporate Bridge Academy (www.cbacademy.in / www.corporatebridge.net/ www.cbjobs.in)
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Corporate Bridge Academy (www.cbacademy.in / www.corporatebridge
Cost of Debt

Synthetic rating
EBIT 2007 50
Interest exp 15
EBIT/Int exp 3.3x

High Market Cap firms Low Market Cap Firms

Interest Coverage Interest Coverage
Ratio Rating Spread Ratio Rating
> 8.5 AAA 0.75% > 12.50 AAA
6.50 -8.50 AA 1.00% 9.50 - 12.50 AA
5.50 - 6.50 A+ 1.50% 7.50 - 9.50 A+
4.25 - 5.50 A 1.80% 6.00 - 7.50 A
3.00 - 4.25 A- 2.00% 4.50 - 6.00 A-
2.50 -3.00 BBB 2.25% 3.50 - 4.50 BBB
2.00 - 2.50 BB 3.50% 3.00 - 3.50 BB
1.75 - 2.00 B+ 4.75% 2.50 - 3.00 B+
1.50 - 1.75 B 6.50% 2.00 - 2.50 B
1.25 - 1.50 B- 8.00% 1.50 - 2.00 B-
0.80 - 1.25 CCC 10.00% 1.25 - 1.50 CCC
0.65 - 0.80 CC 11.50% 0.80 - 1.25 CC
0.20 - 0.65 C 12.70% 0.50 - 0.80 C
< 0.20 D 14.00% < 0.50 D

Default Spread
Risk Free Rate
Cost of Debt
After tax cost of debt

Cost of Equity

D/E Effective
Company Levered Beta Unlevered beta
Ratio tax rate %

Comp 1 1.14 0.40 30.7%

Comp 2 0.98 1.30 30.0%
Comp 3 1.18 1.87 32.0%
Comp 4 0.85 0.99 22.7%
Comp 5 1.31 0.67 10.3%
Comp 6 1.25 1.35 9.6%
Comp 7 0.78 1.03 10.8%
Comp 8 1.09 0.97 18.0%
Mean 1.07 1.07 0.21
Median 1.12 1.01 0.20

Beta of ABC company WACC of ABC company

Unlevered Beta Risk Free rate
Debt/Equity Market risk premium
Tax rate Levered beta of ABC
Levered beta of ABC Cost of equity
Pre-tax cost of debt
Tax rate
After tax cost of debt
WACC

Debt/ Debt + Equity

Equity/ Debt + Equity

Scenario Analysis

Equity beta at various unlevered beta and capital structure

Unlevered Beta
0.00 0.40 0.50 0.60
0.4
Debt to Equity

0.6
0.8
1
1.2

WACC at various unlevered beta and capital structure

Unlevered Beta
0.00 0.40 0.50 0.60
0.4
Debt to Equity

0.6
0.8
1
1.2
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Spread
0.75%
1.00%
1.50%
1.80%
2.00%
2.25%
3.50%
4.75%
6.50%
8.00%
10.00%
11.50%
12.70%
14.00%
Beta
0.70 0.80

Beta
0.70 0.80