The WACC of Air New Zealand Ltd (AIR.NZ) is 9.4%.
| Range | Selected | |
| Cost of equity | 6.30% - 10.80% | 8.55% |
| Tax rate | 29.10% - 31.10% | 30.10% |
| Cost of debt | 4.00% - 24.30% | 14.15% |
| WACC | 4.0% - 14.8% | 9.4% |
| Category | Low | High |
| Long-term bond rate | 4.3% | 4.8% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.4 | 0.9 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.30% | 10.80% |
| Tax rate | 29.10% | 31.10% |
| Debt/Equity ratio | 2.02 | 2.02 |
| Cost of debt | 4.00% | 24.30% |
| After-tax WACC | 4.0% | 14.8% |
| Selected WACC | 9.4% | |
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 AIR.NZ:
cost_of_equity (8.55%) = risk_free_rate (4.55%) + equity_risk_premium (5.60%) * adjusted_beta (0.4) + 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.