The WACC of Banca Monte dei Paschi di Siena SpA (BMPS.MI) is 8.1%.
| Range | Selected | |
| Cost of equity | 15.20% - 20.90% | 18.05% |
| Tax rate | 23.20% - 29.10% | 26.15% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 7.3% - 8.9% | 8.1% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 1.39 | 1.74 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 15.20% | 20.90% |
| Tax rate | 23.20% | 29.10% |
| Debt/Equity ratio | 2.26 | 2.26 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 7.3% | 8.9% |
| Selected WACC | 8.1% | |
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 BMPS.MI:
cost_of_equity (18.05%) = risk_free_rate (3.95%) + equity_risk_premium (8.80%) * adjusted_beta (1.39) + 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.