H.TO WACC - Weighted Average Cost of Capital

The WACC of Hydro One Ltd (H.TO) is 5.2%.

The Cost of Equity of Hydro One Ltd (H.TO) is 6.20%.

The Cost of Debt of Hydro One Ltd (H.TO) is 4.25%.

	Range	Selected
Cost of equity	5.40% - 7.00%	6.20%
Tax rate	14.90% - 17.80%	16.35%
Cost of debt	4.00% - 4.50%	4.25%
WACC	4.6% - 5.8%	5.2%

WACC

H.TO WACC calculation

Category	Low	High

Long-term bond rate	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	0.43	0.47

Additional risk adjustments	0.0%	0.5%
Cost of equity	5.40%	7.00%

Tax rate	14.90%	17.80%
Debt/Equity ratio	0.58	0.58
Cost of debt	4.00%	4.50%

After-tax WACC	4.6%	5.8%


Selected WACC	5.2%

H.TO's CAPM model and how its cost of Equity is calculated

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 H.TO:

cost_of_equity (6.20%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.43) + 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.