The WACC of Ferguson PLC (FERG.L) is 8.2%.
| Range | Selected | |
| Cost of equity | 7.70% - 10.30% | 9.00% |
| Tax rate | 22.70% - 25.10% | 23.90% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 7.1% - 9.4% | 8.2% |
| Category | Low | High |
| Long-term bond rate | 2.2% | 2.7% |
| Equity market risk premium | 5.3% | 6.3% |
| Adjusted beta | 1.04 | 1.12 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.70% | 10.30% |
| Tax rate | 22.70% | 25.10% |
| Debt/Equity ratio | 0.15 | 0.15 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 7.1% | 9.4% |
| Selected WACC | 8.2% | |
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 FERG.L:
cost_of_equity (9.00%) = risk_free_rate (2.45%) + equity_risk_premium (5.80%) * adjusted_beta (1.04) + 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.