The WACC of East Japan Railway Co (9020.T) is 4.3%.
| Range | Selected | |
| Cost of equity | 4.80% - 6.70% | 5.75% |
| Tax rate | 23.10% - 25.70% | 24.40% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 3.8% - 4.7% | 4.3% |
| Category | Low | High |
| Long-term bond rate | 1.4% | 1.9% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 0.56 | 0.61 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 4.80% | 6.70% |
| Tax rate | 23.10% | 25.70% |
| Debt/Equity ratio | 1.44 | 1.44 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 3.8% | 4.7% |
| Selected WACC | 4.3% | |
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 9020.T:
cost_of_equity (5.75%) = risk_free_rate (1.65%) + equity_risk_premium (6.60%) * adjusted_beta (0.56) + 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.