The WACC of Cummins India Ltd (CUMMINSIND.NS) is 16.1%.
| Range | Selected | |
| Cost of equity | 14.00% - 18.30% | 16.15% |
| Tax rate | 22.70% - 22.80% | 22.75% |
| Cost of debt | 7.50% - 10.10% | 8.80% |
| WACC | 14.0% - 18.3% | 16.1% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.86 | 1.12 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 14.00% | 18.30% |
| Tax rate | 22.70% | 22.80% |
| Debt/Equity ratio | 0 | 0 |
| Cost of debt | 7.50% | 10.10% |
| After-tax WACC | 14.0% | 18.3% |
| Selected WACC | 16.1% | |
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 CUMMINSIND.NS:
cost_of_equity (16.15%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (0.86) + 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.