Life Time Fitness
An example of the calculation of the weighted-average cost of capital
Cost of Equity Amount of Equity
Riskfree rate 5.10% Shares
Beta 0.95 Price
Market return 10.6% Value
Cost of Equity 10.33%
Cost of Debt Amount of Debt
Rate 6.85% Book value
Taxrate 35% Adjustment
Cost of Debt 4.45% Value
Total Capital
WACC 8.93%
1670
518
1
518
2188
Life Time Fitness
An example of the calculation of the weighted-average cost of capital
Cost of Equity Amount of Equity
Riskfree rate 5.10% Shares
Beta 1.10 Price
Market return 10.6% Value
Cost of Equity 11.14%
Cost of Debt Amount of Debt
Rate 7.35% Book value
Taxrate 35% Adjustment
Cost of Debt 4.78% Value
Total Capital
WACC 8.76%
New cost of debt (spread) 1.75%
Old beta 0.95
Old D/E 0.31
Unlevered beta 0.79 Bu=Bl/(1+D/E(1-T))
New D/E 0.60
New levered beta 1.10 Bl=Bu(1+D/E(1-T))
1370
818
1
818
2188