The WACC of China Western Power Industrial Co Ltd (002630.SZ) is 7.8%.
| Range | Selected | |
| Cost of equity | 11.70% - 19.40% | 15.55% |
| Tax rate | 8.90% - 12.70% | 10.80% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.7% - 8.9% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.47 | 2.2 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.70% | 19.40% |
| Tax rate | 8.90% | 12.70% |
| Debt/Equity ratio | 2.33 | 2.33 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.7% | 8.9% |
| Selected WACC | 7.8% | |
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 002630.SZ:
cost_of_equity (15.55%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.47) + 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.