The WACC of Erste Group Bank AG (EBS.VI) is 5.9%.
| Range | Selected | |
| Cost of equity | 8.30% - 11.80% | 10.05% |
| Tax rate | 18.10% - 19.40% | 18.75% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.4% - 6.5% | 5.9% |
| Category | Low | High |
| Long-term bond rate | 2.8% | 3.3% |
| Equity market risk premium | 5.7% | 6.7% |
| Adjusted beta | 0.97 | 1.21 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.30% | 11.80% |
| Tax rate | 18.10% | 19.40% |
| Debt/Equity ratio | 2.23 | 2.23 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.4% | 6.5% |
| Selected WACC | 5.9% | |
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 EBS.VI:
cost_of_equity (10.05%) = risk_free_rate (3.05%) + equity_risk_premium (6.20%) * adjusted_beta (0.97) + 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.