The WACC of Geodrill Ltd (GEO.TO) is 9.0%.
| Range | Selected | |
| Cost of equity | 7.60% - 11.20% | 9.40% |
| Tax rate | 30.60% - 37.90% | 34.25% |
| Cost of debt | 4.00% - 11.90% | 7.95% |
| WACC | 7.2% - 10.9% | 9.0% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.88 | 1.16 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.60% | 11.20% |
| Tax rate | 30.60% | 37.90% |
| Debt/Equity ratio | 0.1 | 0.1 |
| Cost of debt | 4.00% | 11.90% |
| After-tax WACC | 7.2% | 10.9% |
| Selected WACC | 9.0% | |
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 GEO.TO:
cost_of_equity (9.40%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.88) + 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.