The WACC of Shanghai International Shanghai Growth Investment Ltd (770.HK) is 5.2%.
| Range | Selected | |
| Cost of equity | 5.30% - 7.80% | 6.55% |
| Tax rate | 22.10% - 22.30% | 22.20% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.6% - 5.8% | 5.2% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 5.5% | 6.5% |
| Adjusted beta | 0.35 | 0.53 |
| Additional risk adjustments | 0.5% | 1.0% |
| Cost of equity | 5.30% | 7.80% |
| Tax rate | 22.10% | 22.30% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.6% | 5.8% |
| Selected WACC | 5.2% | |
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 770.HK:
cost_of_equity (6.55%) = risk_free_rate (3.15%) + equity_risk_premium (6.00%) * adjusted_beta (0.35) + risk_adjustments (0.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.