The WACC of Fair Oaks Income Ltd (FAIR.L) is 8.4%.
| Range | Selected | |
| Cost of equity | 7.00% - 10.40% | 8.70% |
| Tax rate | 19.00% - 19.00% | 19.00% |
| Cost of debt | 10.00% - 10.00% | 10.00% |
| WACC | 7.6% - 9.3% | 8.4% |
| Category | Low | High |
| Long-term bond rate | 0.8% | 1.3% |
| Equity market risk premium | 5.3% | 6.3% |
| Adjusted beta | 1.17 | 1.36 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.00% | 10.40% |
| Tax rate | 19.00% | 19.00% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 10.00% | 10.00% |
| After-tax WACC | 7.6% | 9.3% |
| Selected WACC | 8.4% | |
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 FAIR.L:
cost_of_equity (8.70%) = risk_free_rate (1.05%) + equity_risk_premium (5.80%) * adjusted_beta (1.17) + 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.