The WACC of Diversicare Healthcare Services Inc (DVCR) is 6.8%.
| Range | Selected | |
| Cost of equity | 8.00% - 11.60% | 9.80% |
| Tax rate | 26.90% - 48.30% | 37.60% |
| Cost of debt | 4.20% - 6.80% | 5.50% |
| WACC | 5.7% - 7.9% | 6.8% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.14 | 1.42 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.00% | 11.60% |
| Tax rate | 26.90% | 48.30% |
| Debt/Equity ratio | 0.86 | 0.86 |
| Cost of debt | 4.20% | 6.80% |
| After-tax WACC | 5.7% | 7.9% |
| Selected WACC | 6.8% | |
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 DVCR:
cost_of_equity (9.80%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (1.14) + 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.