The WACC of Australian Pharmaceutical Industries Ltd (API.AX) is 5.9%.
| Range | Selected | |
| Cost of equity | 5.60% - 8.10% | 6.85% |
| Tax rate | 31.30% - 37.80% | 34.55% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 4.8% - 7.0% | 5.9% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 4.7% | 5.7% |
| Adjusted beta | 0.41 | 0.6 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.60% | 8.10% |
| Tax rate | 31.30% | 37.80% |
| Debt/Equity ratio | 0.42 | 0.42 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 4.8% | 7.0% |
| Selected WACC | 5.9% | |
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 API.AX:
cost_of_equity (6.85%) = risk_free_rate (3.95%) + equity_risk_premium (5.20%) * adjusted_beta (0.41) + 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.