The WACC of Hydro One Ltd (H.TO) is 5.3%.
Range | Selected | |
Cost of equity | 5.50% - 7.10% | 6.30% |
Tax rate | 14.90% - 17.80% | 16.35% |
Cost of debt | 4.00% - 4.50% | 4.25% |
WACC | 4.8% - 5.9% | 5.3% |
Category | Low | High |
Long-term bond rate | 3.2% | 3.7% |
Equity market risk premium | 5.1% | 6.1% |
Adjusted beta | 0.47 | 0.49 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 5.50% | 7.10% |
Tax rate | 14.90% | 17.80% |
Debt/Equity ratio | 0.56 | 0.56 |
Cost of debt | 4.00% | 4.50% |
After-tax WACC | 4.8% | 5.9% |
Selected WACC | 5.3% | |
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 (6.30%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.47) + 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.