The WACC of Armour Energy Ltd (AJQ.AX) is 5.3%.
| Range | Selected | |
| Cost of equity | 4.00% - 12.30% | 8.15% |
| Tax rate | 0.90% - 3.00% | 1.95% |
| Cost of debt | 4.00% - 5.10% | 4.55% |
| WACC | 4.0% - 6.6% | 5.3% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | -0.6 | 0.7 |
| Additional risk adjustments | 3.0% | 3.5% |
| Cost of equity | 4.00% | 12.30% |
| Tax rate | 0.90% | 3.00% |
| Debt/Equity ratio | 3.44 | 3.44 |
| Cost of debt | 4.00% | 5.10% |
| After-tax WACC | 4.0% | 6.6% |
| Selected WACC | 5.3% | |
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 AJQ.AX:
cost_of_equity (8.15%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (-0.6) + risk_adjustments (3.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.