The WACC of China Oil and Gas Group Ltd (603.HK) is 5.6%.
| Range | Selected | |
| Cost of equity | 20.00% - 30.40% | 25.20% |
| Tax rate | 24.40% - 27.30% | 25.85% |
| Cost of debt | 5.00% - 5.10% | 5.05% |
| WACC | 5.2% - 6.0% | 5.6% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 2.86 | 3.8 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 20.00% | 30.40% |
| Tax rate | 24.40% | 27.30% |
| Debt/Equity ratio | 10.49 | 10.49 |
| Cost of debt | 5.00% | 5.10% |
| After-tax WACC | 5.2% | 6.0% |
| Selected WACC | 5.6% | |
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 603.HK:
cost_of_equity (25.20%) = risk_free_rate (3.15%) + equity_risk_premium (6.50%) * adjusted_beta (2.86) + 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.