The WACC of FNM SpA (FNM.MI) is 7.4%.
| Range | Selected | |
| Cost of equity | 24.60% - 31.10% | 27.85% |
| Tax rate | 18.90% - 24.70% | 21.80% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 6.8% - 8.0% | 7.4% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 2.52 | 2.84 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 24.60% | 31.10% |
| Tax rate | 18.90% | 24.70% |
| Debt/Equity ratio | 4.94 | 4.94 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 6.8% | 8.0% |
| Selected WACC | 7.4% | |
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 FNM.MI:
cost_of_equity (27.85%) = risk_free_rate (3.95%) + equity_risk_premium (8.80%) * adjusted_beta (2.52) + 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.