The WACC of Franklin Universal Trust (FT) is 6.6%.
Range | Selected | |
Cost of equity | 6.3% - 8.8% | 7.55% |
Tax rate | 26.2% - 27.0% | 26.6% |
Cost of debt | 4.0% - 7.0% | 5.5% |
WACC | 5.4% - 7.8% | 6.6% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.53 | 0.7 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 6.3% | 8.8% |
Tax rate | 26.2% | 27.0% |
Debt/Equity ratio | 0.35 | 0.35 |
Cost of debt | 4.0% | 7.0% |
After-tax WACC | 5.4% | 7.8% |
Selected WACC | 6.6% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
FT | Franklin Universal Trust | 0.35 | 3.55 | 2.83 |
ESSC | East Stone Acquisition Corp | 0.05 | 1.05 | 1.01 |
FAP.TO | Aberdeen Asia-Pacific Income Investment Company Ltd | 0.55 | 0.54 | 0.38 |
IVH | Ivy High Income Opportunities Fund | 0.47 | 0.7 | 0.52 |
NNAX | New Momentum Corp | 0.42 | -0.63 | -0.48 |
RIB.UN.TO | Ridgewood Canadian Investment Grade Bond Fund | 0.06 | 0.02 | 0.02 |
Low | High | |
Unlevered beta | 0.38 | 0.52 |
Relevered beta | 0.3 | 0.55 |
Adjusted relevered beta | 0.53 | 0.7 |
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 FT:
cost_of_equity (7.55%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.53) + 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.