The WACC of Australian Finance Group Ltd (AFG.AX) is 5.0%.
| Range | Selected | |
| Cost of equity | 11.10% - 18.70% | 14.90% |
| Tax rate | 28.30% - 29.60% | 28.95% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 3.7% - 6.3% | 5.0% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 1.38 | 2.25 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.10% | 18.70% |
| Tax rate | 28.30% | 29.60% |
| Debt/Equity ratio | 9.03 | 9.03 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 3.7% | 6.3% |
| Selected WACC | 5.0% | |
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 AFG.AX:
cost_of_equity (14.90%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (1.38) + 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.