The WACC of Gem Diamonds Ltd (GEMD.L) is 10.6%.
| Range | Selected | |
| Cost of equity | 12.40% - 19.80% | 16.10% |
| Tax rate | 32.00% - 34.80% | 33.40% |
| Cost of debt | 6.20% - 18.00% | 12.10% |
| WACC | 6.9% - 14.4% | 10.6% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 1.4 | 2.12 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 12.40% | 19.80% |
| Tax rate | 32.00% | 34.80% |
| Debt/Equity ratio | 2.05 | 2.05 |
| Cost of debt | 6.20% | 18.00% |
| After-tax WACC | 6.9% | 14.4% |
| Selected WACC | 10.6% | |
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 GEMD.L:
cost_of_equity (16.10%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (1.4) + 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.