The WACC of Community Health Systems Inc (CYH) is 6.9%.
| Range | Selected | |
| Cost of equity | 10.50% - 34.30% | 22.40% |
| Tax rate | 37.50% - 45.80% | 41.65% |
| Cost of debt | 6.60% - 15.60% | 11.10% |
| WACC | 4.4% - 9.3% | 6.9% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.44 | 5.26 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.50% | 34.30% |
| Tax rate | 37.50% | 45.80% |
| Debt/Equity ratio | 28.84 | 28.84 |
| Cost of debt | 6.60% | 15.60% |
| After-tax WACC | 4.4% | 9.3% |
| Selected WACC | 6.9% | |
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 CYH:
cost_of_equity (22.40%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.44) + 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.