The WACC of Shanghai Zhenhua Heavy Industries Co Ltd (600320.SS) is 8.2%.
| Range | Selected | |
| Cost of equity | 12.20% - 17.80% | 15.00% |
| Tax rate | 15.20% - 16.90% | 16.05% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 7.2% - 9.1% | 8.2% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.56 | 1.97 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 12.20% | 17.80% |
| Tax rate | 15.20% | 16.90% |
| Debt/Equity ratio | 1.73 | 1.73 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 7.2% | 9.1% |
| Selected WACC | 8.2% | |
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 600320.SS:
cost_of_equity (15.00%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.56) + 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.