The WACC of Arcos Dorados Holdings Inc (ARCO) is 8.0%.
| Range | Selected | |
| Cost of equity | 8.70% - 13.10% | 10.90% |
| Tax rate | 37.70% - 39.10% | 38.40% |
| Cost of debt | 4.50% - 7.20% | 5.85% |
| WACC | 6.3% - 9.6% | 8.0% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.05 | 1.48 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.70% | 13.10% |
| Tax rate | 37.70% | 39.10% |
| Debt/Equity ratio | 0.68 | 0.68 |
| Cost of debt | 4.50% | 7.20% |
| After-tax WACC | 6.3% | 9.6% |
| Selected WACC | 8.0% | |
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 ARCO:
cost_of_equity (10.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.05) + 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.