WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

1. Weights:
Generally speaking, a company's assets are financed by debt and equity. We need to calculate the
weight of equity and the weight of debt.
The market value of equity (E) is also called "Market Cap (M)". As of today, Strategic Asset Leasing Inc's
market capitalization (E) is $1.000 Mil.
The market value of debt is typically difficult to calculate, therefore, GuruFocus uses book value of debt
(D) to do the calculation. It is simplified by adding the latest two-year average Current Portion of Long-
Term Debt and Long-Term Debt & Capital Lease Obligation together. As of Dec. 2092, Strategic Asset
Leasing Inc's latest two-year average Current Portion of Long-Term Debt was $0.2 Mil and its latest two-
year average Long-Term Debt & Capital Lease Obligation was $0.5 Mil. The total Book Value of Debt (D)
is $0.7 Mil.
a) weight of equity = E / (E + D) = 1.000 / (1.000 + 0.7) = 0.5882
b) weight of debt = D / (E + D) = 0.7 / (1.000} + 0.7) = 0.4118

2. Cost of Equity:
GuruFocus uses Capital Asset Pricing Model (CAPM) to calculate the required rate of return. The formula
is:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free
Rate of Return)
a) GuruFocus uses 10-Year Treasury Constant Maturity Rate as the risk-free rate. It is updated daily. The
current risk-free rate is 3.03000000%. Please go to Economic Indicators page for more information.
b) Beta is the sensitivity of the expected excess asset returns to the expected excess market returns.
Strategic Asset Leasing Inc's beta is 4.93.
c) (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus
requires market premium to be 6%.
Cost of Equity = 3.03000000% + 4.93 * 6% = 32.61%

3. Cost of Debt:
GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to get
the simplified cost of debt.
As of Dec. 2092, Strategic Asset Leasing Inc's interest expense (positive number) was $0 Mil. Its total
Book Value of Debt (D) is $0.7 Mil.
Cost of Debt = 0 / 0.7 = 0%.

4. Multiply by one minus Average Tax Rate:

GuruFocus uses the latest two-year average tax rate to do the calculation.
The latest Two-year Average Tax Rate is0%.

Strategic Asset Leasing Inc's Weighted Average Cost Of Capital (WACC) for Today is calculated as:
WACC = E / (E + D) * Cost of Equity + D / (E + D) * Cost of Debt * (1 - Tax Rate)

= 0.5882 * 32.61% + 0.4118 * 0% * (1 - 0%)

= 19.18%

* All numbers are in millions except for per share data and ratio. All numbers are in their local
exchange's currency.

Explanation

Because it costs money to raise capital. A firm that generates higher ROIC % than it costs the company
to raise the capital needed for that investment is earning excess returns. A firm that expects to continue
generating positive excess returns on new investments in the future will see its value increase as growth
increases, whereas a firm that earns returns that do not match up to its cost of capital will destroy value
as it grows.

As of today, Strategic Asset Leasing Inc's weighted average cost of capital is 19.18%. Strategic Asset
Leasing Inc's ROIC % is 0.00% (calculated using TTM income statement data). Strategic Asset Leasing Inc
earns returns that do not match up to its cost of capital. It will destroy value as it grows.

Be Aware

1. GuruFocus uses book value of debt (D) to do the calculation. It is simplified by adding latest two-year
average Current Portion of Long-Term Debt and Long-Term Debt & Capital Lease Obligation together.

2. The WACC formula discussed above does not include Preferred Stock. Please adjust if preferred stock
is considered.

3. (Expected Return of the Market - Risk-Free Rate of Return) is also called market premium. GuruFocus
requires market premium to be 6%.

4. GuruFocus uses last fiscal year end Interest Expense divided by the latest two-year average debt to
get the simplified cost of debt.