The WACC of Computer Programs and Systems Inc (CPSI) is 10.6%.
| Range | Selected | |
| Cost of equity | 9.20% - 12.70% | 10.95% |
| Tax rate | 13.00% - 16.10% | 14.55% |
| Cost of debt | 4.40% - 19.90% | 12.15% |
| WACC | 6.5% - 14.7% | 10.6% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.16 | 1.4 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.20% | 12.70% |
| Tax rate | 13.00% | 16.10% |
| Debt/Equity ratio | 1.04 | 1.04 |
| Cost of debt | 4.40% | 19.90% |
| After-tax WACC | 6.5% | 14.7% |
| Selected WACC | 10.6% | |
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 CPSI:
cost_of_equity (10.95%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.16) + 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.