The WACC of African Energy Resources Ltd (AFR.AX) is 6.8%.
| Range | Selected | |
| Cost of equity | 8.60% - 11.80% | 10.20% |
| Tax rate | 30.00% - 30.00% | 30.00% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.1% - 7.6% | 6.8% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.16 | 1.35 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.60% | 11.80% |
| Tax rate | 30.00% | 30.00% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.1% | 7.6% |
| Selected WACC | 6.8% | |
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 AFR.AX:
cost_of_equity (10.20%) = risk_free_rate (3.95%) + equity_risk_premium (4.70%) * adjusted_beta (1.16) + 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.