Optimal WACC calculation for Kongsberg Gruppen ASA - Systematic review of Kongsberg Gruppen ASA`s WACC calculation

Abstract

The purpose of the thesis is to obtain the best possible estimate of the Weighted Average Cost of Capital (WACC) for Kongsberg Gruppen ASA. The desired outcome is an estimate that is as reliable as possible, future-oriented, but is also a practically applicable estimate. The thesis addresses and sheds light on the underlying factors that have an impact on the calculation. The main topic is how to calculate the Cost of Equity for Kongsberg Gruppen ASA. The following factor models were examined: CAPM, Fama-French Three-Factor model, Carhart Four Factor model, and Fama-French Five-Factor model. We recommend Kongsberg Gruppen ASA to use CAPM as their method for calculating the Cost of Equity. Within the CAPM we propose using Damodaran’s Bottom-up beta. The Riskfree rate should be the Yield to Maturity calculated based on Norwegian Government Bonds, and for the Equity Risk Premium, we recommend calculating the Implied Equity Premium. In the Cost of Debt part in our WACC calculation, we recommend Kongsberg Gruppen ASA to continue using 3-month NIBOR + 10-year credit spread as their pre-tax Cost of Debt. Our conclusion is quite similar to Kongsberg Gruppen ASA calculation methods. However, we believe we managed to further develop these calculations and adjusted them to produce more forward-looking and precise estimates. Using these calculations, Kongsberg Gruppen ASA’s WACC for 2021 is 5,80%.