AAV.TO WACC - Weighted Average Cost of Capital

The WACC of Advantage Oil & Gas Ltd (AAV.TO) is 7.8%.

The Cost of Equity of Advantage Oil & Gas Ltd (AAV.TO) is 7.95%.

The Cost of Debt of Advantage Oil & Gas Ltd (AAV.TO) is 9.55%.

	Range	Selected
Cost of equity	6.10% - 9.80%	7.95%
Tax rate	23.30% - 24.70%	24.00%
Cost of debt	7.40% - 11.70%	9.55%
WACC	6.0% - 9.5%	7.8%

WACC

AAV.TO WACC calculation

Category	Low	High

Long-term bond rate	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	0.58	0.93

Additional risk adjustments	0.0%	0.5%
Cost of equity	6.10%	9.80%

Tax rate	23.30%	24.70%
Debt/Equity ratio	0.41	0.41
Cost of debt	7.40%	11.70%

After-tax WACC	6.0%	9.5%


Selected WACC	7.8%

AAV.TO'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 AAV.TO:

cost_of_equity (7.95%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.58) + 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.