ARR WACC - Weighted Average Cost of Capital
The WACC of ARMOUR Residential REIT Inc (ARR) is 4.7%.
| Range | Selected | |
| Cost of equity | 6.1% - 8.1% | 7.1% |
| Tax rate | 26.2% - 27.0% | 26.6% |
| Cost of debt | 5.1% - 7.0% | 6.05% |
| WACC | 4.0% - 5.5% | 4.7% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.48 | 0.58 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.1% | 8.1% |
| Tax rate | 26.2% | 27.0% |
| Debt/Equity ratio | 7.78 | 7.78 |
| Cost of debt | 5.1% | 7.0% |
| After-tax WACC | 4.0% | 5.5% |
| Selected WACC | 4.7% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| ARR | ARMOUR Residential REIT Inc | 7.78 | 0.73 | 0.11 |
| AAIC | Arlington Asset Investment Corp | 5.62 | 1.44 | 0.28 |
| ACR | Acres Commercial Realty Corp | 9.99 | 0.12 | 0.01 |
| CHMI | Cherry Hill Mortgage Investment Corp | 12.21 | 0.64 | 0.06 |
| CVHL | CV Holdings Inc | 570.34 | -1.09 | 0 |
| DX | Dynex Capital Inc | 5.16 | 0.41 | 0.09 |
| JERT | JER Investors Trust Inc | 106974 | 0.82 | 0 |
| LOAN | Manhattan Bridge Capital Inc | 0.38 | -0.13 | -0.1 |
| SACH | Sachem Capital Corp | 6.52 | 0.29 | 0.05 |
| WMC | Western Asset Mortgage Capital Corp | 42.05 | 1.5 | 0.05 |
| Low | High | |
| Unlevered beta | 0.03 | 0.06 |
| Relevered beta | 0.22 | 0.37 |
| Adjusted relevered beta | 0.48 | 0.58 |
ARR'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 ARR:
cost_of_equity (7.10%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.48) + 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.