The WACC of Linzhou Heavy Machinery Group Co Ltd (002535.SZ) is 8.9%.
| Range | Selected | |
| Cost of equity | 10.40% - 13.50% | 11.95% |
| Tax rate | 5.30% - 10.70% | 8.00% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 8.0% - 9.7% | 8.9% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.26 | 1.38 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.40% | 13.50% |
| Tax rate | 5.30% | 10.70% |
| Debt/Equity ratio | 0.73 | 0.73 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 8.0% | 9.7% |
| Selected WACC | 8.9% | |
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 002535.SZ:
cost_of_equity (11.95%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.26) + 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.