The WACC of HDFC Life Insurance Company Ltd (HDFCLIFE.NS) is 14.3%.
| Range | Selected | |
| Cost of equity | 12.90% - 15.90% | 14.40% |
| Tax rate | 1.30% - 2.50% | 1.90% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 12.9% - 15.8% | 14.3% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.73 | 0.86 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 12.90% | 15.90% |
| Tax rate | 1.30% | 2.50% |
| Debt/Equity ratio | 0.01 | 0.01 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 12.9% | 15.8% |
| Selected WACC | 14.3% | |
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 HDFCLIFE.NS:
cost_of_equity (14.40%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (0.73) + 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.