The WACC of Cathay Financial Holding Co Ltd (2882.TW) is 7.4%.
| Range | Selected | |
| Cost of equity | 7.30% - 10.90% | 9.10% |
| Tax rate | 11.60% - 12.30% | 11.95% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.2% - 8.6% | 7.4% |
| Category | Low | High |
| Long-term bond rate | 2.0% | 2.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.88 | 1.13 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.30% | 10.90% |
| Tax rate | 11.60% | 12.30% |
| Debt/Equity ratio | 0.57 | 0.57 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.2% | 8.6% |
| Selected WACC | 7.4% | |
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 2882.TW:
cost_of_equity (9.10%) = risk_free_rate (2.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.88) + 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.