The WACC of Contact Energy Ltd (CEN.NZ) is 7.9%.
| Range | Selected | |
| Cost of equity | 7.60% - 10.30% | 8.95% |
| Tax rate | 28.20% - 28.30% | 28.25% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 6.7% - 9.2% | 7.9% |
| Category | Low | High |
| Long-term bond rate | 4.3% | 4.8% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.65 | 0.82 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.60% | 10.30% |
| Tax rate | 28.20% | 28.30% |
| Debt/Equity ratio | 0.26 | 0.26 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 6.7% | 9.2% |
| Selected WACC | 7.9% | |
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 CEN.NZ:
cost_of_equity (8.95%) = risk_free_rate (4.55%) + equity_risk_premium (5.60%) * adjusted_beta (0.65) + 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.