The WACC of Fonterra Co-Operative Group Ltd (FCG.NZ) is 7.2%.
| Range | Selected | |
| Cost of equity | 7.30% - 10.20% | 8.75% |
| Tax rate | 16.90% - 18.30% | 17.60% |
| Cost of debt | 4.00% - 5.40% | 4.70% |
| WACC | 6.1% - 8.4% | 7.2% |
| Category | Low | High |
| Long-term bond rate | 4.3% | 4.8% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.59 | 0.8 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.30% | 10.20% |
| Tax rate | 16.90% | 18.30% |
| Debt/Equity ratio | 0.45 | 0.45 |
| Cost of debt | 4.00% | 5.40% |
| After-tax WACC | 6.1% | 8.4% |
| Selected WACC | 7.2% | |
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 FCG.NZ:
cost_of_equity (8.75%) = risk_free_rate (4.55%) + equity_risk_premium (5.60%) * adjusted_beta (0.59) + 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.