The WACC of IDFC Ltd (IDFC.NS) is 10.5%.
| Range | Selected | |
| Cost of equity | 13.10% - 20.10% | 16.60% |
| Tax rate | 6.20% - 18.70% | 12.45% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 8.9% - 12.1% | 10.5% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.75 | 1.32 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 13.10% | 20.10% |
| Tax rate | 6.20% | 18.70% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 8.9% | 12.1% |
| Selected WACC | 10.5% | |
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 IDFC.NS:
cost_of_equity (16.60%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (0.75) + 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.