The WACC of Lotte Chilsung Beverage Co Ltd (005300.KS) is 5.4%.
| Range | Selected | |
| Cost of equity | 7.00% - 9.10% | 8.05% |
| Tax rate | 22.20% - 24.20% | 23.20% |
| Cost of debt | 4.00% - 6.20% | 5.10% |
| WACC | 4.6% - 6.3% | 5.4% |
| Category | Low | High |
| Long-term bond rate | 3.1% | 3.6% |
| Equity market risk premium | 5.8% | 6.8% |
| Adjusted beta | 0.68 | 0.73 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.00% | 9.10% |
| Tax rate | 22.20% | 24.20% |
| Debt/Equity ratio | 1.7 | 1.7 |
| Cost of debt | 4.00% | 6.20% |
| After-tax WACC | 4.6% | 6.3% |
| Selected WACC | 5.4% | |
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 005300.KS:
cost_of_equity (8.05%) = risk_free_rate (3.35%) + equity_risk_premium (6.30%) * adjusted_beta (0.68) + 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.