The WACC of China Techfaith Wireless Communication Technology Ltd (CNTFY) is 6.2%.
| Range | Selected | |
| Cost of equity | 32.90% - 69.80% | 51.35% |
| Tax rate | 1.70% - 4.90% | 3.30% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 4.5% - 7.9% | 6.2% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 7.02 | 12.53 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 32.90% | 69.80% |
| Tax rate | 1.70% | 4.90% |
| Debt/Equity ratio | 51.62 | 51.62 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 4.5% | 7.9% |
| Selected WACC | 6.2% | |
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 CNTFY:
cost_of_equity (51.35%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (7.02) + 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.