The WACC of Evolution Petroleum Corp (EPM) is 8.7%.
| Range | Selected | |
| Cost of equity | 5.20% - 6.60% | 5.90% |
| Tax rate | 21.80% - 22.70% | 22.25% |
| Cost of debt | 23.90% - 23.90% | 23.90% |
| WACC | 8.2% - 9.2% | 8.7% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -0.15 | -0.05 |
| Additional risk adjustments | 2.0% | 2.5% |
| Cost of equity | 5.20% | 6.60% |
| Tax rate | 21.80% | 22.70% |
| Debt/Equity ratio | 0.29 | 0.29 |
| Cost of debt | 23.90% | 23.90% |
| After-tax WACC | 8.2% | 9.2% |
| Selected WACC | 8.7% | |
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 EPM:
cost_of_equity (5.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-0.15) + risk_adjustments (2.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.