The WACC of CEFC Hong Kong Financial Investment Company Ltd (1520.HK) is 6.0%.
| Range | Selected | |
| Cost of equity | 5.30% - 6.80% | 6.05% |
| Tax rate | 1.20% - 1.90% | 1.55% |
| Cost of debt | 4.50% - 7.00% | 5.75% |
| WACC | 5.2% - 6.8% | 6.0% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.31 | 0.34 |
| Additional risk adjustments | 0.5% | 1.0% |
| Cost of equity | 5.30% | 6.80% |
| Tax rate | 1.20% | 1.90% |
| Debt/Equity ratio | 0.06 | 0.06 |
| Cost of debt | 4.50% | 7.00% |
| After-tax WACC | 5.2% | 6.8% |
| Selected WACC | 6.0% | |
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 1520.HK:
cost_of_equity (6.05%) = risk_free_rate (3.15%) + equity_risk_premium (6.50%) * adjusted_beta (0.31) + risk_adjustments (0.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.