The WACC of Shanghai Morn Electric Equipment Co Ltd (002451.SZ) is 10.3%.
| Range | Selected | |
| Cost of equity | 9.90% - 13.60% | 11.75% |
| Tax rate | 7.40% - 14.50% | 10.95% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 8.8% - 11.7% | 10.3% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.18 | 1.39 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.90% | 13.60% |
| Tax rate | 7.40% | 14.50% |
| Debt/Equity ratio | 0.25 | 0.25 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 8.8% | 11.7% |
| Selected WACC | 10.3% | |
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 002451.SZ:
cost_of_equity (11.75%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.18) + 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.