The WACC of Bank of Nova Scotia (BNS.TO) is 5.4%.
| Range | Selected | |
| Cost of equity | 7.90% - 11.00% | 9.45% |
| Tax rate | 21.00% - 21.70% | 21.35% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.0% - 5.8% | 5.4% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.93 | 1.12 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.90% | 11.00% |
| Tax rate | 21.00% | 21.70% |
| Debt/Equity ratio | 2.8 | 2.8 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.0% | 5.8% |
| Selected WACC | 5.4% | |
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 BNS.TO:
cost_of_equity (9.45%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * 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.