The WACC of FirstGroup PLC (FGP.L) is 7.1%.
| Range | Selected | |
| Cost of equity | 9.10% - 13.60% | 11.35% |
| Tax rate | 21.90% - 41.20% | 31.55% |
| Cost of debt | 4.40% - 6.20% | 5.30% |
| WACC | 6.0% - 8.2% | 7.1% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.86 | 1.24 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.10% | 13.60% |
| Tax rate | 21.90% | 41.20% |
| Debt/Equity ratio | 1.2 | 1.2 |
| Cost of debt | 4.40% | 6.20% |
| After-tax WACC | 6.0% | 8.2% |
| Selected WACC | 7.1% | |
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 FGP.L:
cost_of_equity (11.35%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.86) + 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.