AAIC WACC - Weighted Average Cost of Capital
The WACC of Arlington Asset Investment Corp (AAIC) is 5.6%.
| Range | Selected | |
| Cost of equity | 8.8% - 12.1% | 10.45% |
| Tax rate | 0.5% - 8.6% | 4.55% |
| Cost of debt | 5.0% - 5.0% | 5% |
| WACC | 5.6% - 5.7% | 5.6% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 0.93 | 1.16 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.8% | 12.1% |
| Tax rate | 0.5% | 8.6% |
| Debt/Equity ratio | 5.62 | 5.62 |
| Cost of debt | 5.0% | 5.0% |
| After-tax WACC | 5.6% | 5.7% |
| Selected WACC | 5.6% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| AAIC | Arlington Asset Investment Corp | 5.62 | 1.44 | 0.22 |
| BMNM | Bimini Capital Management Inc | 15.11 | 0.3 | 0.02 |
| CVHL | CV Holdings Inc | 676.76 | -0.55 | 0 |
| ECRO | ECC Capital Corp | 303.98 | -0.47 | 0 |
| JERT | JER Investors Trust Inc | 106974 | 0.82 | 0 |
| LOAN | Manhattan Bridge Capital Inc | 0.36 | -0.13 | -0.1 |
| PMT | PennyMac Mortgage Investment Trust | 11.04 | 0.34 | 0.03 |
| SACH | Sachem Capital Corp | 4.94 | -0.03 | -0.01 |
| TRMT | Tremont Mortgage Trust | 3.7 | 1.91 | 0.41 |
| TRTX | TPG RE Finance Trust Inc | 3.95 | 0.11 | 0.02 |
| Low | High | |
| Unlevered beta | 0 | 0.02 |
| Relevered beta | 0.9 | 1.24 |
| Adjusted relevered beta | 0.93 | 1.16 |
AAIC's CAPM model and how its cost of Equity is calculated
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 AAIC:
cost_of_equity (10.45%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (0.93) + 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.