The WACC of Drive Shack Inc (DS) is 5.5%.
| Range | Selected | |
| Cost of equity | 5.80% - 7.20% | 6.50% |
| Tax rate | 3.90% - 4.40% | 4.15% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 4.2% - 6.8% | 5.5% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 0.32 | 0.33 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.80% | 7.20% |
| Tax rate | 3.90% | 4.40% |
| Debt/Equity ratio | 3.99 | 3.99 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 4.2% | 6.8% |
| Selected WACC | 5.5% | |
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 DS:
cost_of_equity (6.50%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (0.32) + 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.