ARDC WACC - Weighted Average Cost of Capital
The WACC of Ares Dynamic Credit Allocation Fund Inc (ARDC) is 8.6%.
| Range | Selected | |
| Cost of equity | 9.9% - 13.2% | 11.55% |
| Tax rate | 26.2% - 27.0% | 26.6% |
| Cost of debt | 4.0% - 5.1% | 4.55% |
| WACC | 7.4% - 9.8% | 8.6% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.31 | 1.49 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.9% | 13.2% |
| Tax rate | 26.2% | 27.0% |
| Debt/Equity ratio | 0.56 | 0.56 |
| Cost of debt | 4.0% | 5.1% |
| After-tax WACC | 7.4% | 9.8% |
| Selected WACC | 8.6% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| ARDC | Ares Dynamic Credit Allocation Fund Inc | 0.56 | 3.55 | 2.51 |
| GPM | Guggenheim Enhanced Equity Income Fund | 0.33 | 1.45 | 1.16 |
| NRGX | Pimco Energy and Tactical Credit Opportunities Fund | 0.27 | 1.79 | 1.5 |
| PGI.UN.TO | PIMCO Global Income Opportunities Fund | 0.45 | 0.71 | 0.53 |
| Low | High | |
| Unlevered beta | 1.23 | 1.43 |
| Relevered beta | 1.46 | 1.73 |
| Adjusted relevered beta | 1.31 | 1.49 |
ARDC's CAPM model and how its cost of Equity is calculated
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 ARDC:
cost_of_equity (11.55%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.31) + 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.