The WACC of Shandong Longquan Pipeline Engineering Co Ltd (002671.SZ) is 9.0%.
| Range | Selected | |
| Cost of equity | 9.10% - 12.60% | 10.85% |
| Tax rate | 9.60% - 19.80% | 14.70% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 7.8% - 10.1% | 9.0% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.05 | 1.26 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.10% | 12.60% |
| Tax rate | 9.60% | 19.80% |
| Debt/Equity ratio | 0.41 | 0.41 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 7.8% | 10.1% |
| Selected WACC | 9.0% | |
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 002671.SZ:
cost_of_equity (10.85%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.05) + 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.