The WACC of Global Petroleum Ltd (GBP.L) is 5.2%.
| Range | Selected | |
| Cost of equity | 4.50% - 8.00% | 6.25% |
| Tax rate | 19.00% - 19.00% | 19.00% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.3% - 6.0% | 5.2% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.09 | 0.43 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 4.50% | 8.00% |
| Tax rate | 19.00% | 19.00% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.3% | 6.0% |
| Selected WACC | 5.2% | |
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 GBP.L:
cost_of_equity (6.25%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.09) + 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.