The WACC of Formosa Petrochemical Corp (6505.TW) is 5.8%.
| Range | Selected | |
| Cost of equity | 4.80% - 7.20% | 6.00% |
| Tax rate | 13.60% - 15.00% | 14.30% |
| Cost of debt | 4.00% - 5.20% | 4.60% |
| WACC | 4.7% - 6.9% | 5.8% |
| Category | Low | High |
| Long-term bond rate | 2.0% | 2.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.46 | 0.59 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 4.80% | 7.20% |
| Tax rate | 13.60% | 15.00% |
| Debt/Equity ratio | 0.11 | 0.11 |
| Cost of debt | 4.00% | 5.20% |
| After-tax WACC | 4.7% | 6.9% |
| Selected WACC | 5.8% | |
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 6505.TW:
cost_of_equity (6.00%) = risk_free_rate (2.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.46) + 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.