The WACC of Ares Capital Corp (ARCC) is 7.8%.
Range | Selected | |
Cost of equity | 8.3% - 11.0% | 9.65% |
Tax rate | 3.0% - 4.1% | 3.55% |
Cost of debt | 4.3% - 7.5% | 5.9% |
WACC | 6.4% - 9.2% | 7.8% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.96 | 1.1 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 8.3% | 11.0% |
Tax rate | 3.0% | 4.1% |
Debt/Equity ratio | 0.87 | 0.87 |
Cost of debt | 4.3% | 7.5% |
After-tax WACC | 6.4% | 9.2% |
Selected WACC | 7.8% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
ARCC | Ares Capital Corp | 0.87 | 0.68 | 0.37 |
AMG | Affiliated Managers Group Inc | 0.45 | 0.96 | 0.67 |
APAM | Artisan Partners Asset Management Inc | 0.05 | 1.2 | 1.14 |
CIX.TO | CI Financial Corp | 0.96 | 0.56 | 0.29 |
FHI | Federated Hermes Inc | 0.1 | 0.65 | 0.59 |
FOCS | Focus Financial Partners Inc | 0.72 | 1.57 | 0.93 |
FSKR | FS KKR Capital Corp II | 1.08 | 1.1 | 0.54 |
IGM.TO | IGM Financial Inc | 1.13 | 1.01 | 0.49 |
JHG | Janus Henderson Group PLC | 0.06 | 1.32 | 1.25 |
ORCC | Owl Rock Capital Corp | 1.38 | 0.88 | 0.38 |
Low | High | |
Unlevered beta | 0.52 | 0.63 |
Relevered beta | 0.94 | 1.15 |
Adjusted relevered beta | 0.96 | 1.1 |
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 ARCC:
cost_of_equity (9.65%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.96) + 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.