The WACC of Air France KLM SA (AF.PA) is 6.4%.
| Range | Selected | |
| Cost of equity | 15.10% - 22.30% | 18.70% |
| Tax rate | 11.70% - 14.20% | 12.95% |
| Cost of debt | 4.10% - 6.60% | 5.35% |
| WACC | 5.1% - 7.8% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 3.0% | 3.5% |
| Equity market risk premium | 5.8% | 6.8% |
| Adjusted beta | 2.09 | 2.68 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 15.10% | 22.30% |
| Tax rate | 11.70% | 14.20% |
| Debt/Equity ratio | 6.81 | 6.81 |
| Cost of debt | 4.10% | 6.60% |
| After-tax WACC | 5.1% | 7.8% |
| 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 AF.PA:
cost_of_equity (18.70%) = risk_free_rate (3.25%) + equity_risk_premium (6.30%) * adjusted_beta (2.09) + 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.