The WACC of Gabelli Merger Plus+ Trust PLC (GMP.L) is 7.2%.
| Range | Selected | |
| Cost of equity | 7.30% - 11.70% | 9.50% |
| Tax rate | 2.20% - 2.40% | 2.30% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.1% - 8.3% | 7.2% |
| Category | Low | High |
| Long-term bond rate | 1.7% | 2.2% |
| Equity market risk premium | 4.8% | 5.8% |
| Adjusted beta | 1.17 | 1.54 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.30% | 11.70% |
| Tax rate | 2.20% | 2.40% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.1% | 8.3% |
| Selected WACC | 7.2% | |
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 GMP.L:
cost_of_equity (9.50%) = risk_free_rate (1.95%) + equity_risk_premium (5.30%) * adjusted_beta (1.17) + 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.