The WACC of Balfour Beatty PLC (BBY.L) is 8.7%.
| Range | Selected | |
| Cost of equity | 8.90% - 11.10% | 10.00% |
| Tax rate | 17.70% - 19.20% | 18.45% |
| Cost of debt | 4.60% - 5.50% | 5.05% |
| WACC | 7.8% - 9.6% | 8.7% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.82 | 0.88 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.90% | 11.10% |
| Tax rate | 17.70% | 19.20% |
| Debt/Equity ratio | 0.28 | 0.28 |
| Cost of debt | 4.60% | 5.50% |
| After-tax WACC | 7.8% | 9.6% |
| Selected WACC | 8.7% | |
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 BBY.L:
cost_of_equity (10.00%) = 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.