The WACC of Bonanza Creek Energy Inc (BCEI) is 9.4%.
| Range | Selected | |
| Cost of equity | 7.10% - 11.80% | 9.45% |
| Tax rate | 27.00% - 27.00% | 27.00% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 7.1% - 11.8% | 9.4% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 0.93 | 1.45 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.10% | 11.80% |
| Tax rate | 27.00% | 27.00% |
| Debt/Equity ratio | 0 | 0 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 7.1% | 11.8% |
| 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 BCEI:
cost_of_equity (9.45%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (0.93) + 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.