The WACC of Yunhong CTI Ltd (CTIB) is 6.5%.
| Range | Selected | |
| Cost of equity | 5.80% - 7.70% | 6.75% |
| Tax rate | 26.20% - 27.00% | 26.60% |
| Cost of debt | 5.10% - 7.00% | 6.05% |
| WACC | 5.6% - 7.4% | 6.5% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 0.33 | 0.41 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.80% | 7.70% |
| Tax rate | 26.20% | 27.00% |
| Debt/Equity ratio | 0.1 | 0.1 |
| Cost of debt | 5.10% | 7.00% |
| After-tax WACC | 5.6% | 7.4% |
| Selected WACC | 6.5% | |
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 CTIB:
cost_of_equity (6.75%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (0.33) + 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.