The WACC of Elco Ltd (ELCO.TA) is 5.7%.
| Range | Selected | |
| Cost of equity | 9.60% - 12.30% | 10.95% |
| Tax rate | 22.70% - 28.00% | 25.35% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.4% - 5.9% | 5.7% |
| Category | Low | High |
| Long-term bond rate | 4.8% | 5.3% |
| Equity market risk premium | 6.1% | 7.1% |
| Adjusted beta | 0.78 | 0.91 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.60% | 12.30% |
| Tax rate | 22.70% | 28.00% |
| Debt/Equity ratio | 2.73 | 2.73 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.4% | 5.9% |
| Selected WACC | 5.7% | |
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 ELCO.TA:
cost_of_equity (10.95%) = risk_free_rate (5.05%) + equity_risk_premium (6.60%) * adjusted_beta (0.78) + 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.