The WACC of CEAT Ltd (CEATLTD.NS) is 15.0%.
| Range | Selected | |
| Cost of equity | 14.60% - 17.20% | 15.90% |
| Tax rate | 25.10% - 25.70% | 25.40% |
| Cost of debt | 8.60% - 10.40% | 9.50% |
| WACC | 13.8% - 16.2% | 15.0% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.94 | 1 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 14.60% | 17.20% |
| Tax rate | 25.10% | 25.70% |
| Debt/Equity ratio | 0.12 | 0.12 |
| Cost of debt | 8.60% | 10.40% |
| After-tax WACC | 13.8% | 16.2% |
| Selected WACC | 15.0% | |
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 CEATLTD.NS:
cost_of_equity (15.90%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (0.94) + 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.