In preparation for the discounted cashflow valuation of Red Bull, we need to calculate the cost of capital. And we're going to do that by looking at the comparable companies because Red Bull is a private company, so we have to look at comparables to calculate the cost of capital. Now, although it's called the cost of capital, actually a better way of thinking about it is it's the expected return that investors require for investing in this asset. And you can see here we've got our comparable companies. We've got Coca-Cola, Keurig, Dr. Pepper, Monster, PepsiCo, and Vitri, and we've got some key data for them. The market cap, the debt leverage multiple, a beta credit rating and a marginal tax rate. The first thing we're going to do is calculate the debt over capital. So I'm gonna take the total debt divided by the total debt plus the market capitalization, and we get debt over capital. And I'll just copy that down. I could use a median calculation, but I'm gonna use an average calculation here. And that's the average leverage in the sector. And now what we need to do is we need to convert the debt over capital ratio into a debt over equity ratio. And if debt is 14% of capital, it means that equity is 86% of capital. So I can calculate the debt of equity by taking the 14% divided by 1 minus the 14%, which is 86%. And that will give me the debt over equity ratio. And I need this because I need to deleverage my reported beta, the historical beta. So I'm gonna use the historical beta and then I'll divide that by 1 plus the debt over equity percentage. And what that does is because 1 plus 16.3% is greater than 1, it will decrease the beta. But then there's a dampening effect because of the tax deductibility of interest. So I'll multiply that by 1 minus the marginal tax rate, and I'll copy that down and always just check to see if the unlevered beta is lower than the levered beta because it should be. And then finally, I can do a quick average calculation for these unlevered betas. So that will be kind of industry beta or the asset beta or the beta. They all mean the same thing. Then what I'm going to do is I'm gonna come down and I'm gonna calculate WACC. So the key benchmarks here, we've got the risk free rate, which in most jurisdictions will use the 10 year government bond. Some firms use 20 years, but you should check, and this is the 10 year risk free rate for the European market or the Eurozone, because Red Bull is based in Austria. The risk premium is usually given to you by your firm. It's fairly controversial, but you should use what is the policy internally. Then we're going to pull in the industry average unlevered beta, which we calculated here. And I'm gonna pull in the marginal tax rate for Red Bull from the model.

And I'm gonna come down here and I'm gonna take the projected marginal tax rate because that will reflect better the future and revaluing firm in the future. Now we need to get the industry average implied debt as a percent of equity. It will be tempting to use the leverage ratios that we've got in the column, which is the industry debt of equity. We shouldn't do that. We need to make sure that our weightings are consistent and we are going to be using the 11.2% in our WACC weights. So therefore, I want to convert that into an average debt over equity ratio. So I'll take the 11.2%, so that is 11.2% of debt in the capital structure, which means that the equity percentage is 88.8%. I'll just take that and divide that by 1 minus the 11.2%. It's a similar conversion that I did before. So now I'm going to calculate the implied debt as a percent of equity. I can't use column L because I need to be completely consistent between what I'm applying to the beta as the weightings in the WACC calculation. So I'll take the 11.2 and I'll divide it by 1 minus 11.2 to convert it into a debt over equity ratio. I can releve the beta by taking the 0.72, but in this case times 1 minus the tax rate, the marginal tax rate. So that means my lever beta should be high, and it is, it goes from 0.72 to 0.79. So the cost of equity, the three building blocks we've got is the risk-free rate, the market risk premium adjusted by the releveled beta. So I'll take the risk-free rate, I'll add the market risk premium, and I'm gonna multiply by the levered beta and I get 7% of my cost of equity. So I'm just going to take one minus the average debt in the capital structure and I get 88.8%. And then for the cost of debt, that's more straightforward because we've got a simple corporate spread, so corporations can't borrow at the same rate as governments. So we're going to add that spread to the risk-free rate, and that will give us our cost of debt. But of course, the firm has a tax deduction on interest expense. So we'll take the 3.7 times 1 minus the marginal tax rate and I get 2.8%. And then debt as a percentage of capital is simply a reference to that 11.2%. And finally, we can calculate the WACC by taking the cost of equity multiplied by the equity weight, plus the cost of debt after tax. Multiplied by the debt weighting, we get an overall cost of capital of 6.5%.