The WACC of BHP Group Ltd (BHP.AX) is 10.1%.
| Range | Selected | |
| Cost of equity | 8.70% - 13.60% | 11.15% |
| Tax rate | 32.90% - 35.90% | 34.40% |
| Cost of debt | 4.70% - 5.00% | 4.85% |
| WACC | 8.0% - 12.2% | 10.1% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.92 | 1.41 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.70% | 13.60% |
| Tax rate | 32.90% | 35.90% |
| Debt/Equity ratio | 0.16 | 0.16 |
| Cost of debt | 4.70% | 5.00% |
| After-tax WACC | 8.0% | 12.2% |
| Selected WACC | 10.1% | |
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 BHP.AX:
cost_of_equity (11.15%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (0.92) + 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.