The WACC of Zhongguancun Science Tech Leasing Co Ltd (1601.HK) is 7.9%.
| Range | Selected | |
| Cost of equity | 26.20% - 41.40% | 33.80% |
| Tax rate | 25.00% - 25.00% | 25.00% |
| Cost of debt | 4.60% - 8.10% | 6.35% |
| WACC | 5.9% - 9.9% | 7.9% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 3.9 | 5.37 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 26.20% | 41.40% |
| Tax rate | 25.00% | 25.00% |
| Debt/Equity ratio | 8.3 | 8.3 |
| Cost of debt | 4.60% | 8.10% |
| After-tax WACC | 5.9% | 9.9% |
| Selected WACC | 7.9% | |
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 1601.HK:
cost_of_equity (33.80%) = risk_free_rate (3.15%) + equity_risk_premium (6.50%) * adjusted_beta (3.9) + 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.