The WACC of Arion banki hf (ARION.IC) is 7.1%.
| Range | Selected | |
| Cost of equity | 11.50% - 16.90% | 14.20% |
| Tax rate | 26.50% - 27.40% | 26.95% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.2% - 8.0% | 7.1% |
| Category | Low | High |
| Long-term bond rate | 7.1% | 7.6% |
| Equity market risk premium | 6.3% | 7.3% |
| Adjusted beta | 0.7 | 1.21 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.50% | 16.90% |
| Tax rate | 26.50% | 27.40% |
| Debt/Equity ratio | 2.08 | 2.08 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.2% | 8.0% |
| Selected WACC | 7.1% | |
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 ARION.IC:
cost_of_equity (14.20%) = risk_free_rate (7.35%) + equity_risk_premium (6.80%) * adjusted_beta (0.7) + 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.