Chevron Corporation

Weighted Average Cost of Capital

Model Summary

Range
Low High Conclusion

Cost of Equity
Selected Beta 1.00 1.20 1.10
Market Risk Premium 5.5% 5.5% 5.5%
Risk-free Rate 4.0% 4.0% 4.0%
Additional Risk Adjustments 0.0% 1.0% 0.5%
Implied Cost of Equity 9.5% 11.6% 10.6%

Cost of Debt Inputs

Pre-tax Cost of Debt 4.0% 5.0% 4.5%
Tax Rate 39.0% 39.0% 39.0%
Debt % of Capital 15.0% 25.0% 20.0%
Implied Cost of Debt 2.4% 3.1% 2.7%

WACC Range 8.4% 9.5% 9.0%

Estimate Cost of Equity

Cost of Equity Low High

Selected Beta 1.00 1.20
(x) Market Risk Premium 5.5% 5.5%
Adjusted Market Risk Premium 5.5% 6.6%

(+) Risk-free Rate 4.0% 4.0%

(+) Additional Risk Adjustments 0.0% 1.0%

Cost of Equity 9.5% 11.6%

Select A Tax Rate

Fiscal Year Ending

Dec-12 Dec-13
Pre-tax Income 46,332 35,905
Provision for Taxes (19,996) (14,308)
Net Income (Continuing Ops) 26,336 21,597

Effective Tax Rate 43.2% 39.8%

5-Year Average 40.8%

Selected Tax Rate 39.0%

Estimate Cost of Debt

Cost of Debt Benchmarks

5 Year Avg Effective Interest Exp 0.0%

Synthetic Interest Rate Estimate 4.8%

Cost of Debt Low High

Selected Long-term Debt 4.0% 5.0%
Tax Rate 39.0% 39.0%

After-tax Cost of Debt 2.4% 3.1%

Select Debt & Equity Weights

Comparable Companies Debt Market Cap Debt / Total Capital

XOM 40,610 355,790 10.2%
PSX 10,201 51,606 16.5%
TOT 51,432 139,569 26.9%
VLO 8,485 39,877 17.5%
MPC 12,782 32,411 28.3%
CVX 41,972 237,383 15.0%

Average 27,580 142,773 19.1%

Low High
Weights
Debt % of Capital 15.0% 25.0%
Equity % of Capital 85.0% 75.0%

Calculate a Weighted Average Range

Cost Estimates
Cost of Equity 9.5% 11.6%
After-tax Cost of Debt 2.4% 3.1%

Weights
Equity % of Capital 85.0% 75.0%
Debt % of Capital 15.0% 25.0%

WACC Range 8.4% 9.5%

Selected WACC 9.0%

Supporting Calculations

Effective Interest Rate

Fiscal Year Ending

Dec-12 Dec-13

Interest Expense 0 0
Total Debt 12,192 20,431

Effective Interest Rate 0.0%

Average Effective Interest Rate 0.0%

Synthetic Interest Rate

Fiscal Year Ending

Dec-12 Dec-13

Interest Expense 0 0
EBIT 46,332 35,905

NA NA

Synthetic Calculation Rating

Average Interest Coverage NA sl A- to AAA
0 B- to BBB
Risk Free Rate 4.0% 0 C to CCC
(+) Default Spread 0.8% 0 D

Implied Cost of Debt 4.8% Source Link

Select Re-levered Beta

Comparable Companies Levered Beta Debt / Capital Tax Rate

XOM 0.68 10.2% 39.0%
PSX 0.95 16.5% 39.0%
TOT 0.69 26.9% 39.0%
VLO 1.00 17.5% 39.0%
MPC 1.71 28.3% 39.0%
CVX 1.30 15.0% 39.0%

Average 1.06 19.1% 39.0%

Low High
Selected Unlevered Beta 0.90 1.00
Debt % of Capital 15.0% 25.0%
Equity % of Capital 85.0% 75.0%
Tax Rate 39.0% 39.0%

Re-levered Beta 1.00 1.20

Sanity Checks

Value Failing?
Cost of Debt > 1% 2.7% 0
Cost of Equity > 6% 10.6% 0
Cost of Capital > 5% 9.0% 0

Checks Passed? TRUE

 $124.98
12/25/2017

Selected WACC

9.0%

Notes
See Re-levered Beta Section
Source Link

Source Link

Fiscal Year Ending

Dec-14 Dec-15 Dec-16
 31,202 4,842 (2,160)
(11,892) (132) 1,729
19,310 4,710 (431)

38.1% 2.7% 80.0%

Notes

See "Effective Interest Rate"

See "Synthetic Interest Rate"

See Tax Rate Section

Total Capital
Fiscal Year Ending
Dec-14 Dec-15 Dec-16

0 0 0
27,818 38,549 46,126

0.0% 0.0% 0.0%

Fiscal Year Ending

Dec-14 Dec-15 Dec-16

0 0 0
31,202 4,842 (1,959)

NA NA NA

EBIT / Interest Spread

> 3.0 0.8%
1.25 - 3.0 3.8%
0.2 - 1.25 8.3%
 < 0.2 12.0%

e Link

Unlevered BetaBloomberg Adj. Beta

0.64 0.76
0.85 0.90
0.57 0.71
0.89 0.93
1.38 1.25
1.17 1.12

0.92 0.94
 01/01/12
07/30/12

#VALUE!

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