The WACC of Credito Emiliano SpA (CE.MI) is 7.7%.
| Range | Selected | |
| Cost of equity | 16.80% - 23.60% | 20.20% |
| Tax rate | 28.50% - 31.50% | 30.00% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.9% - 8.5% | 7.7% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 1.58 | 2.03 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 16.80% | 23.60% |
| Tax rate | 28.50% | 31.50% |
| Debt/Equity ratio | 2.96 | 2.96 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.9% | 8.5% |
| Selected WACC | 7.7% | |
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 CE.MI:
cost_of_equity (20.20%) = risk_free_rate (3.95%) + equity_risk_premium (8.80%) * adjusted_beta (1.58) + 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.