The WACC of 2020 Bulkers Ltd (2020.OL) is 8.5%.
| Range | Selected | |
| Cost of equity | 9.10% - 11.50% | 10.30% |
| Tax rate | 0.20% - 0.60% | 0.40% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 7.6% - 9.4% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 3.3% | 3.8% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 1.14 | 1.18 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.10% | 11.50% |
| Tax rate | 0.20% | 0.60% |
| Debt/Equity ratio | 0.42 | 0.42 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 7.6% | 9.4% |
| Selected WACC | 8.5% | |
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 2020.OL:
cost_of_equity (10.30%) = risk_free_rate (3.55%) + equity_risk_premium (5.60%) * adjusted_beta (1.14) + 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.