The WACC of Abb Ltd (ABBN.SW) is 6.4%.
| Range | Selected | |
| Cost of equity | 5.50% - 7.70% | 6.60% |
| Tax rate | 21.20% - 23.20% | 22.20% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 5.3% - 7.4% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 1.0% | 1.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.88 | 0.94 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.50% | 7.70% |
| Tax rate | 21.20% | 23.20% |
| Debt/Equity ratio | 0.07 | 0.07 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 5.3% | 7.4% |
| Selected WACC | 6.4% | |
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 ABBN.SW:
cost_of_equity (6.60%) = risk_free_rate (1.25%) + equity_risk_premium (5.60%) * adjusted_beta (0.88) + 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.