The WACC of Independence Contract Drilling Inc (ICD) is 7.8%.
| Range | Selected | |
| Cost of equity | 1,912.80% - 2,979.60% | 2,446.20% |
| Tax rate | 3.10% - 6.50% | 4.80% |
| Cost of debt | 4.90% - 7.00% | 5.95% |
| WACC | 6.4% - 9.2% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 414.99 | 531.19 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 1,912.80% | 2,979.60% |
| Tax rate | 3.10% | 6.50% |
| Debt/Equity ratio | 1112.68 | 1112.68 |
| Cost of debt | 4.90% | 7.00% |
| After-tax WACC | 6.4% | 9.2% |
| Selected WACC | 7.8% | |
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 ICD:
cost_of_equity (2,446.20%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (414.99) + 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.