The WACC of Alector Inc (ALEC) is 8.8%.
Range | Selected | |
Cost of equity | 6.90% - 11.40% | 9.15% |
Tax rate | 26.20% - 27.00% | 26.60% |
Cost of debt | 5.00% - 5.00% | 5.00% |
WACC | 6.7% - 10.9% | 8.8% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.66 | 1.16 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 6.90% | 11.40% |
Tax rate | 26.20% | 27.00% |
Debt/Equity ratio | 0.07 | 0.07 |
Cost of debt | 5.00% | 5.00% |
After-tax WACC | 6.7% | 10.9% |
Selected WACC | 8.8% | |
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 Alector:
cost_of_equity (9.15%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.66) + 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.