The WACC of China Everbright Bank Co Ltd (601818.SS) is 4.1%.
| Range | Selected | |
| Cost of equity | 3.30% - 6.30% | 4.80% |
| Tax rate | 18.20% - 19.00% | 18.60% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.0% - 4.3% | 4.1% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | -0.22 | 0.09 |
| Additional risk adjustments | 2.0% | 2.5% |
| Cost of equity | 3.30% | 6.30% |
| Tax rate | 18.20% | 19.00% |
| Debt/Equity ratio | 9.18 | 9.18 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.0% | 4.3% |
| Selected WACC | 4.1% | |
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 601818.SS:
cost_of_equity (4.80%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (-0.22) + risk_adjustments (2.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.