The WACC of Algonquin Power & Utilities Corp (AQN.TO) is 4.5%.
| Range | Selected | |
| Cost of equity | 5.70% - 7.60% | 6.65% |
| Tax rate | 25.00% - 42.20% | 33.60% |
| Cost of debt | 4.80% - 4.90% | 4.85% |
| WACC | 4.4% - 4.7% | 4.5% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.51 | 0.57 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.70% | 7.60% |
| Tax rate | 25.00% | 42.20% |
| Debt/Equity ratio | 1.59 | 1.59 |
| Cost of debt | 4.80% | 4.90% |
| After-tax WACC | 4.4% | 4.7% |
| Selected WACC | 4.5% | |
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 AQN.TO:
cost_of_equity (6.65%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.51) + 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.