The WACC of Gulf Keystone Petroleum Ltd (GKP.L) is 8.5%.
| Range | Selected | |
| Cost of equity | 7.60% - 9.40% | 8.50% |
| Tax rate | 0.60% - 0.80% | 0.70% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 7.6% - 9.4% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.6 | 0.63 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.60% | 9.40% |
| Tax rate | 0.60% | 0.80% |
| Debt/Equity ratio | 0 | 0 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 7.6% | 9.4% |
| Selected WACC | 8.5% | |
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 GKP.L:
cost_of_equity (8.50%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.6) + 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.