HPS.A.TO WACC - Weighted Average Cost of Capital

The WACC of Hammond Power Solutions Inc (HPS.A.TO) is 8.4%.

The Cost of Equity of Hammond Power Solutions Inc (HPS.A.TO) is 8.50%.

The Cost of Debt of Hammond Power Solutions Inc (HPS.A.TO) is 4.25%.

	Range	Selected
Cost of equity	6.90% - 10.10%	8.50%
Tax rate	25.50% - 27.20%	26.35%
Cost of debt	4.00% - 4.50%	4.25%
WACC	6.8% - 9.9%	8.4%

WACC

HPS.A.TO WACC calculation

Category	Low	High

Long-term bond rate	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	0.74	0.97

Additional risk adjustments	0.0%	0.5%
Cost of equity	6.90%	10.10%

Tax rate	25.50%	27.20%
Debt/Equity ratio	0.02	0.02
Cost of debt	4.00%	4.50%

After-tax WACC	6.8%	9.9%


Selected WACC	8.4%

HPS.A.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 HPS.A.TO:

cost_of_equity (8.50%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.74) + 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.