The WACC of China Fortune Land Development Co Ltd (600340.SS) is 6.0%.
| Range | Selected | |
| Cost of equity | 50.80% - 67.50% | 59.15% |
| Tax rate | 28.40% - 36.50% | 32.45% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.8% - 6.2% | 6.0% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 7.86 | 8.95 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 50.80% | 67.50% |
| Tax rate | 28.40% | 36.50% |
| Debt/Equity ratio | 19.96 | 19.96 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.8% | 6.2% |
| Selected WACC | 6.0% | |
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 600340.SS:
cost_of_equity (59.15%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (7.86) + 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.