The WACC of Jiangsu Lianfa Textile Co Ltd (002394.SZ) is 8.4%.
| Range | Selected | |
| Cost of equity | 9.30% - 12.70% | 11.00% |
| Tax rate | 17.90% - 22.60% | 20.25% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 7.4% - 9.5% | 8.4% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.07 | 1.26 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.30% | 12.70% |
| Tax rate | 17.90% | 22.60% |
| Debt/Equity ratio | 0.58 | 0.58 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 7.4% | 9.5% |
| Selected WACC | 8.4% | |
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 002394.SZ:
cost_of_equity (11.00%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.07) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.