The WACC of Highwood Oil Company Ltd (HOCL.V) is 7.0%.
| Range | Selected | |
| Cost of equity | 5.20% - 9.00% | 7.10% |
| Tax rate | 19.50% - 20.50% | 20.00% |
| Cost of debt | 4.50% - 7.50% | 6.00% |
| WACC | 5.1% - 8.8% | 7.0% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.7% | 5.7% |
| Adjusted beta | 0.33 | 0.76 |
| Additional risk adjustments | 0.5% | 1.0% |
| Cost of equity | 5.20% | 9.00% |
| Tax rate | 19.50% | 20.50% |
| Debt/Equity ratio | 0.07 | 0.07 |
| Cost of debt | 4.50% | 7.50% |
| After-tax WACC | 5.1% | 8.8% |
| Selected WACC | 7.0% | |
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 HOCL.V:
cost_of_equity (7.10%) = risk_free_rate (3.45%) + equity_risk_premium (5.20%) * adjusted_beta (0.33) + risk_adjustments (0.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.