The WACC of Indian Railway Finance Corp Ltd (IRFC.NS) is 7.0%.
| Range | Selected | |
| Cost of equity | 16.50% - 21.40% | 18.95% |
| Tax rate | 30.00% - 30.00% | 30.00% |
| Cost of debt | 4.00% - 7.50% | 5.75% |
| WACC | 5.6% - 8.5% | 7.0% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 1.16 | 1.45 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 16.50% | 21.40% |
| Tax rate | 30.00% | 30.00% |
| Debt/Equity ratio | 3.98 | 3.98 |
| Cost of debt | 4.00% | 7.50% |
| After-tax WACC | 5.6% | 8.5% |
| Selected WACC | 7.0% | |
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 IRFC.NS:
cost_of_equity (18.95%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (1.16) + 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.