The WACC of Golar LNG Partners LP (GMLP) is 4.6%.
| Range | Selected | |
| Cost of equity | 7.40% - 15.60% | 11.50% |
| Tax rate | 15.50% - 32.10% | 23.80% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 4.0% - 5.1% | 4.6% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 0.99 | 2.17 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.40% | 15.60% |
| Tax rate | 15.50% | 32.10% |
| Debt/Equity ratio | 5.06 | 5.06 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 4.0% | 5.1% |
| Selected WACC | 4.6% | |
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 GMLP:
cost_of_equity (11.50%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (0.99) + 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.