The WACC of Hefei Urban Construction Development Co Ltd (002208.SZ) is 5.1%.
| Range | Selected | |
| Cost of equity | 5.40% - 8.40% | 6.90% |
| Tax rate | 24.30% - 29.20% | 26.75% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.5% - 5.8% | 5.1% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 0.36 | 0.6 |
| Additional risk adjustments | 0.5% | 1.0% |
| Cost of equity | 5.40% | 8.40% |
| Tax rate | 24.30% | 29.20% |
| Debt/Equity ratio | 1.2 | 1.2 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.5% | 5.8% |
| Selected WACC | 5.1% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for 002208.SZ:
cost_of_equity (6.90%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (0.36) + risk_adjustments (0.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.