The WACC of China Yuchai International Ltd (CYD) is 7.5%.
| Range | Selected | |
| Cost of equity | 8.10% - 11.90% | 10.00% |
| Tax rate | 15.20% - 17.10% | 16.15% |
| Cost of debt | 4.00% - 6.40% | 5.20% |
| WACC | 6.0% - 9.0% | 7.5% |
| Category | Low | High |
| Long-term bond rate | 2.6% | 3.1% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.31 | 1.59 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.10% | 11.90% |
| Tax rate | 15.20% | 17.10% |
| Debt/Equity ratio | 0.77 | 0.77 |
| Cost of debt | 4.00% | 6.40% |
| After-tax WACC | 6.0% | 9.0% |
| Selected WACC | 7.5% | |
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 CYD:
cost_of_equity (10.00%) = risk_free_rate (2.85%) + equity_risk_premium (4.70%) * adjusted_beta (1.31) + 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.