The WACC of Senior Secured Floating Rate Loan Fund (FRL.UN.TO) is 7.3%.
| Range | Selected | |
| Cost of equity | 10.70% - 14.80% | 12.75% |
| Tax rate | 26.50% - 26.50% | 26.50% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.5% - 8.2% | 7.3% |
| Category | Low | High |
| Long-term bond rate | 3.4% | 3.9% |
| Equity market risk premium | 4.7% | 5.7% |
| Adjusted beta | 1.56 | 1.83 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.70% | 14.80% |
| Tax rate | 26.50% | 26.50% |
| Debt/Equity ratio | 1.48 | 1.48 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.5% | 8.2% |
| Selected WACC | 7.3% | |
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 FRL.UN.TO:
cost_of_equity (12.75%) = risk_free_rate (3.65%) + equity_risk_premium (5.20%) * adjusted_beta (1.56) + 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.