Costco Wholesale Corporation (COST) WACC · Cost of Capital Analysis

WACC

9.1%

Blended cost of capital

Cost of Equity (K_e)

9.2%

R_f + β × ERP

Beta

0.90

5-yr weekly, Blume-adjusted

After-tax K_d

3.5%

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)	0.90	5-year weekly regression vs S&P 500, Blume-adjusted
Cost of equity (K_e)	9.2%	CAPM: R_f + β × ERP = 4.25% + 0.90 × 5.55%
Pre-tax cost of debt (K_d)	4.60%	Current-yield estimate on senior unsecured debt at issuer's rating
Marginal tax rate (t)	24.0%	Blended federal + state; company-specific effective rate
After-tax cost of debt	3.5%	K_d × (1 − t) = 4.60% × 76.0%
Equity weight (E/V)	98.0%	Market value of equity ÷ total capitalization
Debt weight (D/V)	2.0%	Market value of debt ÷ total capitalization
WACC	9.1%	(E/V × K_e) + (D/V × K_d after-tax)

Practitioner Notes

Costco's low debt and steady same-store-sales growth make WACC calculation straightforward. The membership fee structure means a meaningful share of operating profit is recurring subscription revenue — some practitioners argue Costco's true equity risk is closer to a subscription-software business than a retail business, which would justify a lower beta than the raw regression. Practitioner note on governance: Charlie Munger served on the Costco board of directors from 1997 until his death in November 2023 and publicly called Costco one of his favorite businesses of all time. Berkshire Hathaway itself has not held a material COST position, but Munger held the stock personally and the governance connection made Costco effectively Berkshire-adjacent for a quarter-century. Costco's culture of low-price discipline, employee treatment, and long-horizon capital allocation was in part shaped by Munger's influence in the boardroom. Any Berkshire-watching practitioner should treat Costco as a case study in what Munger considered a great business.

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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 COST, or the cost-of-capital anchor when comparing COST to peers in the Consumer Staples Merchandise Retail industry. For equity-only valuation frameworks (dividend discount models, residual income), use the cost of equity K_e of 9.2% instead of the blended WACC.

The methodology page walks each input in more depth and explains where reasonable practitioners disagree. If your own model uses different inputs, the companion Excel workbook exposes every formula so you can substitute directly.

Cite This Page

    Baratelli Institute. “Costco Wholesale Corporation (COST) — WACC.”
    Baratelli WACC Reference. Snapshot date 2026-06-30.

    https://baratelliinstitute.com/wacc/cost.html
  

Berkshire Read — Munger on Costco
Charlie Munger served on the Costco board for 26 years and considered it one of his favorite businesses. The practitioner reference on Berkshire's philosophy walks Munger's role in shaping the Berkshire framework that Costco exemplifies.

Consumer Staples sector peers in this reference: WMT (Walmart Inc.), KO (The Coca-Cola Company), PEP (PepsiCo, Inc.), KHC (The Kraft Heinz Company).

All companies in the reference: The full WACC Reference Library (73 companies).

The methodology: How the numbers are calculated.

The applied companion: The Baratelli CFO & Controller's Guide covers WACC methodology within a full controllership framework.

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