The WACC of BAE Systems PLC (BA.L) is 9.4%.
| Range | Selected | |
| Cost of equity | 8.90% - 11.70% | 10.30% |
| Tax rate | 13.50% - 14.80% | 14.15% |
| Cost of debt | 5.40% - 5.50% | 5.45% |
| WACC | 8.2% - 10.6% | 9.4% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.82 | 0.96 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.90% | 11.70% |
| Tax rate | 13.50% | 14.80% |
| Debt/Equity ratio | 0.19 | 0.19 |
| Cost of debt | 5.40% | 5.50% |
| After-tax WACC | 8.2% | 10.6% |
| Selected WACC | 9.4% | |
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 BA.L:
cost_of_equity (10.30%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.82) + 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.