The WACC of Indian Oil Corporation Ltd (IOC.NS) is 12.5%.
| Range | Selected | |
| Cost of equity | 14.70% - 19.30% | 17.00% |
| Tax rate | 23.70% - 24.80% | 24.25% |
| Cost of debt | 5.30% - 10.00% | 7.65% |
| WACC | 10.4% - 14.6% | 12.5% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 0.95 | 1.23 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 14.70% | 19.30% |
| Tax rate | 23.70% | 24.80% |
| Debt/Equity ratio | 0.68 | 0.68 |
| Cost of debt | 5.30% | 10.00% |
| After-tax WACC | 10.4% | 14.6% |
| Selected WACC | 12.5% | |
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 IOC.NS:
cost_of_equity (17.00%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (0.95) + 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.