The WACC of All American Pet Co Inc (AAPT) is 5.1%.
| Range | Selected | |
| Cost of equity | 5.10% - 83.50% | 44.30% |
| Tax rate | -% - -% | -% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.0% - 5.1% | 5.1% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -3.64 | 10.83 |
| Additional risk adjustments | 18.0% | 18.5% |
| Cost of equity | 5.10% | 83.50% |
| Tax rate | -% | -% |
| Debt/Equity ratio | 588.93 | 588.93 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.0% | 5.1% |
| Selected WACC | 5.1% | |
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 AAPT:
cost_of_equity (44.30%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-3.64) + risk_adjustments (18.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.