The WACC of Interoil Exploration and Production ASA (IOX.OL) is 4.5%.
| Range | Selected | |
| Cost of equity | 10.30% - 15.00% | 12.65% |
| Tax rate | 22.00% - 22.00% | 22.00% |
| Cost of debt | 4.80% - 5.10% | 4.95% |
| WACC | 4.3% - 4.8% | 4.5% |
| Category | Low | High |
| Long-term bond rate | 3.3% | 3.8% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 1.36 | 1.75 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.30% | 15.00% |
| Tax rate | 22.00% | 22.00% |
| Debt/Equity ratio | 12.41 | 12.41 |
| Cost of debt | 4.80% | 5.10% |
| After-tax WACC | 4.3% | 4.8% |
| Selected WACC | 4.5% | |
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 IOX.OL:
cost_of_equity (12.65%) = risk_free_rate (3.55%) + equity_risk_premium (5.60%) * adjusted_beta (1.36) + 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.