The WACC of Associated British Foods PLC (ABF.L) is 7.0%.
| Range | Selected | |
| Cost of equity | 7.20% - 8.90% | 8.05% |
| Tax rate | 27.90% - 31.70% | 29.80% |
| Cost of debt | 4.00% - 4.70% | 4.35% |
| WACC | 6.4% - 7.7% | 7.0% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.54 | 0.55 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.20% | 8.90% |
| Tax rate | 27.90% | 31.70% |
| Debt/Equity ratio | 0.25 | 0.25 |
| Cost of debt | 4.00% | 4.70% |
| After-tax WACC | 6.4% | 7.7% |
| Selected WACC | 7.0% | |
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 ABF.L:
cost_of_equity (8.05%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.54) + 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.