The WACC of Zhejiang Changhua Auto Parts Co Ltd (605018.SS) is 10.8%.
| Range | Selected | |
| Cost of equity | 9.80% - 12.20% | 11.00% |
| Tax rate | 6.10% - 9.50% | 7.80% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 9.7% - 12.0% | 10.8% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.17 | 1.2 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.80% | 12.20% |
| Tax rate | 6.10% | 9.50% |
| Debt/Equity ratio | 0.04 | 0.04 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 9.7% | 12.0% |
| Selected WACC | 10.8% | |
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 605018.SS:
cost_of_equity (11.00%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.17) + 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.