The WACC of Hexo Corp (HEXO.TO) is 9.0%.
| Range | Selected | |
| Cost of equity | 17.70% - 28.20% | 22.95% |
| Tax rate | 0.80% - 2.00% | 1.40% |
| Cost of debt | 7.00% - 7.00% | 7.00% |
| WACC | 8.4% - 9.7% | 9.0% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 2.85 | 3.94 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 17.70% | 28.20% |
| Tax rate | 0.80% | 2.00% |
| Debt/Equity ratio | 6.59 | 6.59 |
| Cost of debt | 7.00% | 7.00% |
| After-tax WACC | 8.4% | 9.7% |
| Selected WACC | 9.0% | |
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 HEXO.TO:
cost_of_equity (22.95%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (2.85) + 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.