The WACC of China Huarong Energy Co Ltd (1101.HK) is 5.3%.
| Range | Selected | |
| Cost of equity | 5.30% - 29.90% | 17.60% |
| Tax rate | 0.20% - 0.40% | 0.30% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.0% - 5.5% | 5.3% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | -0 | 3.38 |
| Additional risk adjustments | 2.5% | 3.0% |
| Cost of equity | 5.30% | 29.90% |
| Tax rate | 0.20% | 0.40% |
| Debt/Equity ratio | 43.96 | 43.96 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.0% | 5.5% |
| Selected WACC | 5.3% | |
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 1101.HK:
cost_of_equity (17.60%) = risk_free_rate (3.15%) + equity_risk_premium (6.50%) * adjusted_beta (-0) + risk_adjustments (2.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.