The WACC of Xiamen Leading Optics Co Ltd (605118.SS) is 12.7%.
| Range | Selected | |
| Cost of equity | 11.20% - 14.30% | 12.75% |
| Tax rate | 11.50% - 11.80% | 11.65% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 11.2% - 14.3% | 12.7% |
| Category | Low | High |
| Long-term bond rate | 2.7% | 3.2% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 1.39 | 1.49 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.20% | 14.30% |
| Tax rate | 11.50% | 11.80% |
| Debt/Equity ratio | 0 | 0 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 11.2% | 14.3% |
| Selected WACC | 12.7% | |
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 605118.SS:
cost_of_equity (12.75%) = risk_free_rate (2.95%) + equity_risk_premium (6.60%) * adjusted_beta (1.39) + 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.