The WACC of Changchun Faway Automobile Components Co Ltd (600742.SS) is 9.8%.
| Range | Selected | |
| Cost of equity | 11.40% - 15.30% | 13.35% |
| Tax rate | 11.70% - 13.60% | 12.65% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 8.7% - 11.0% | 9.8% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.42 | 1.62 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.40% | 15.30% |
| Tax rate | 11.70% | 13.60% |
| Debt/Equity ratio | 0.64 | 0.64 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 8.7% | 11.0% |
| Selected WACC | 9.8% | |
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 600742.SS:
cost_of_equity (13.35%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.42) + 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.