Berkshire Hathaway Inc. (BRK.B) WACC · Cost of Capital Analysis

WACC

8.6%

Blended cost of capital

Cost of Equity (K_e)

9.0%

R_f + β × ERP

Beta

0.85

5-yr weekly, Blume-adjusted

After-tax K_d

3.6%

Pre-tax × (1 − t)

The Calculation, Walked

Component	Value	Source / Assumption
Risk-free rate (R_f)	4.25%	10-year US Treasury yield at snapshot date
Equity risk premium (ERP)	5.55%	Damodaran implied ERP, June 2026 update
Beta (β)	0.85	5-year weekly regression vs S&P 500, Blume-adjusted
Cost of equity (K_e)	9.0%	CAPM: R_f + β × ERP = 4.25% + 0.85 × 5.55%
Pre-tax cost of debt (K_d)	4.75%	Current-yield estimate on senior unsecured debt at issuer's rating
Marginal tax rate (t)	24.5%	Blended federal + state; company-specific effective rate
After-tax cost of debt	3.6%	K_d × (1 − t) = 4.75% × 75.5%
Equity weight (E/V)	94.0%	Market value of equity ÷ total capitalization
Debt weight (D/V)	6.0%	Market value of debt ÷ total capitalization
WACC	8.6%	(E/V × K_e) + (D/V × K_d after-tax)

Practitioner Notes

Berkshire's WACC understates the true blended cost of capital because two large zero-cost funding sources do not appear in the standard debt weight. First, insurance float — the premiums held between collection and claim payment — functions as a zero-cost (or negative-cost) liability at Berkshire because underwriting profit has been regularly positive across the property-casualty book. Second, deferred tax liability on unrealized investment gains — the accumulated tax that would come due only if the equity portfolio were sold — behaves economically like a permanent interest-free loan from the IRS. Buffett has written about this dynamic directly in the annual letters. The DTL sits in the tens of billions of dollars and grows with portfolio appreciation; because Berkshire's tax strategy is to hold positions rather than realize gains, the DTL functions as long-duration zero-cost capital. A full practitioner analysis of Berkshire should present both a book WACC (as calculated here) and an adjusted WACC that reclassifies float and DTL as sources of capital. The reclassified figure typically lowers the effective cost of capital by 80–150 basis points depending on year, which materially changes the answer any DCF gives on Berkshire's intrinsic value.

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Where This Number Fits

Use this WACC as the discount rate in an enterprise-value DCF, the hurdle rate for value-based management analysis of BRK.B, or the cost-of-capital anchor when comparing BRK.B to peers in the Diversified Insurance & Holding industry. For equity-only valuation frameworks (dividend discount models, residual income), use the cost of equity K_e of 9.0% instead of the blended WACC.

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Cite This Page

    Baratelli Institute. “Berkshire Hathaway Inc. (BRK.B) — WACC.”
    Baratelli WACC Reference. Snapshot date 2026-06-30.

    https://baratelliinstitute.com/wacc/brk-b.html
  

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Financials sector peers in this reference: JPM (JPMorgan Chase & Co.), BAC (Bank of America Corporation), CB (Chubb Limited), MET (MetLife Inc.).

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