Question

currently trying to calculate WACC for Dell Inc. Struck in market risk premium. Can I assume 20%? correct me if I am wrong..thanks

Answer 1

I think using a 20% risk premium is too much.A much simpler way would be to use the implied equity risk premium.Just check the first page on damodaran`s web site and you should be able to get it.

Answer 2

Market Risk Premium = Stock Return over the period (CAGR,etc) - Risk Free Rate
So how could it go to 20%?

Answer 3

Thanks Fsbatista1 and gloomberg. YEs, 20% really seems to be very high. Since my company in question Dell Inc is one of the constituents of NASDAQ composite, i referred to return from NASDAQ Comp for the last 5 years - which is 25%. And I arrived to around 20% by (25%-4.2%). 4.2% is the risk free rate.
Isn't this method right apart from the the other methods viz., CAGR, implied equity risk premium etc? ....

Answer 4

The only problem is that u used short time span. Why don't u just use Historical returns from Ibbotson or as mentioned above from Damodaran date? I think thet risk premium is around 6,2% on S&P 500.