The WACC of Independent Investment Trust PLC (IIT.L) is 9.0%.
| Range | Selected | |
| Cost of equity | 11.20% - 14.80% | 13.00% |
| Tax rate | -% - -% | -% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 8.1% - 9.9% | 9.0% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 5.3% | 6.3% |
| Adjusted beta | 1.55 | 1.72 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.20% | 14.80% |
| Tax rate | -% | -% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 8.1% | 9.9% |
| 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 IIT.L:
cost_of_equity (13.00%) = risk_free_rate (3.15%) + equity_risk_premium (5.80%) * adjusted_beta (1.55) + 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.