The WACC of First Foundation Inc (FFWM) is 7.8%.
Range | Selected | |
Cost of equity | 8.4% - 11.0% | 9.7% |
Tax rate | 27.2% - 28.3% | 27.75% |
Cost of debt | 5.0% - 5.0% | 5% |
WACC | 6.9% - 8.7% | 7.8% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 1 | 1.1 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 8.4% | 11.0% |
Tax rate | 27.2% | 28.3% |
Debt/Equity ratio | 0.46 | 0.46 |
Cost of debt | 5.0% | 5.0% |
After-tax WACC | 6.9% | 8.7% |
Selected WACC | 7.8% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
FFWM | First Foundation Inc | 0.46 | 0.73 | 0.55 |
BANC | Banc of California Inc | 0.59 | 0.18 | 0.13 |
BPFH | Boston Private Financial Holdings Inc | 0.13 | 1.05 | 0.96 |
OBNK | Origin Bancorp Inc | 0.29 | 0.54 | 0.45 |
PFBC | Preferred Bank | 0.14 | 0.8 | 0.73 |
RBCAA | Republic Bancorp Inc | 0.07 | 0.85 | 0.8 |
SRCE | 1st Source Corp | 0.17 | 0.85 | 0.76 |
TBBK | Bancorp Inc | 0.05 | 1.32 | 1.28 |
TSC | TriState Capital Holdings Inc | 0.21 | 1.9 | 1.65 |
WASH | Washington Trust Bancorp Inc | 0.04 | 1.06 | 1.03 |
Low | High | |
Unlevered beta | 0.75 | 0.86 |
Relevered beta | 1 | 1.15 |
Adjusted relevered beta | 1 | 1.1 |
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 FFWM:
cost_of_equity (9.70%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1) + 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.