The WACC of EDP Energias de Portugal SA (EDP.LS) is 7.1%.
| Range | Selected | |
| Cost of equity | 9.50% - 12.60% | 11.05% |
| Tax rate | 26.00% - 27.70% | 26.85% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.4% - 7.8% | 7.1% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 6.9% | 7.8% |
| Adjusted beta | 0.97 | 1.12 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.50% | 12.60% |
| Tax rate | 26.00% | 27.70% |
| Debt/Equity ratio | 1.18 | 1.18 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.4% | 7.8% |
| Selected WACC | 7.1% | |
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 EDP.LS:
cost_of_equity (11.05%) = risk_free_rate (3.15%) + equity_risk_premium (7.35%) * 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.