The WACC of Armstrong Flooring Inc (AFI) is 10.4%.
| Range | Selected | |
| Cost of equity | 41.80% - 70.50% | 56.15% |
| Tax rate | 1.90% - 7.30% | 4.60% |
| Cost of debt | 7.00% - 8.30% | 7.65% |
| WACC | 9.1% - 11.7% | 10.4% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 9.12 | 12.66 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 41.80% | 70.50% |
| Tax rate | 1.90% | 7.30% |
| Debt/Equity ratio | 14.59 | 14.59 |
| Cost of debt | 7.00% | 8.30% |
| After-tax WACC | 9.1% | 11.7% |
| Selected WACC | 10.4% | |
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 AFI:
cost_of_equity (56.15%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (9.12) + 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.