The WACC of Chia Tai Enterprises International Ltd (3839.HK) is 5.3%.
| Range | Selected | |
| Cost of equity | 4.90% - 7.10% | 6.00% |
| Tax rate | 14.20% - 23.20% | 18.70% |
| Cost of debt | 5.00% - 7.00% | 6.00% |
| WACC | 4.5% - 6.0% | 5.3% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.34 | 0.46 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 4.90% | 7.10% |
| Tax rate | 14.20% | 23.20% |
| Debt/Equity ratio | 1.55 | 1.55 |
| Cost of debt | 5.00% | 7.00% |
| After-tax WACC | 4.5% | 6.0% |
| 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 3839.HK:
cost_of_equity (6.00%) = risk_free_rate (3.15%) + equity_risk_premium (6.50%) * adjusted_beta (0.34) + 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.