The WACC of Fednat Holding Co (FNHC) is 4.3%.
| Range | Selected | |
| Cost of equity | 40.10% - 256.70% | 148.40% |
| Tax rate | 24.10% - 32.40% | 28.25% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.0% - 4.6% | 4.3% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 7.19 | 41.92 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 40.10% | 256.70% |
| Tax rate | 24.10% | 32.40% |
| Debt/Equity ratio | 204.88 | 204.88 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.0% | 4.6% |
| Selected WACC | 4.3% | |
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 FNHC:
cost_of_equity (148.40%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (7.19) + 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.