JPI WACC - Weighted Average Cost of Capital
The WACC of Nuveen Preferred and Income Term Fund (JPI) is 8.0%.
| Range | Selected | |
| Cost of equity | 9.3% - 13.2% | 11.25% |
| Tax rate | 26.2% - 27.0% | 26.6% |
| Cost of debt | 4.0% - 7.5% | 5.75% |
| WACC | 6.4% - 9.6% | 8.0% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.18 | 1.49 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.3% | 13.2% |
| Tax rate | 26.2% | 27.0% |
| Debt/Equity ratio | 0.85 | 0.85 |
| Cost of debt | 4.0% | 7.5% |
| After-tax WACC | 6.4% | 9.6% |
| Selected WACC | 8.0% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| JPI | Nuveen Preferred and Income Term Fund | 0.85 | 3.55 | 2.18 |
| CGI.TO | Canadian General Investments Ltd | 0.25 | 1.2 | 1.02 |
| NHF | NexPoint Strategic Opportunities Fund | 0.07 | 1.19 | 1.13 |
| NID | Nuveen Intermediate Duration Municipal Term Fund | 0.05 | 0.25 | 0.24 |
| NRGX | Pimco Energy and Tactical Credit Opportunities Fund | 0.27 | 1.79 | 1.5 |
| PKO | PIMCO Income Opportunity Fund | 0.77 | 0.65 | 0.42 |
| Low | High | |
| Unlevered beta | 1.02 | 1.13 |
| Relevered beta | 1.27 | 1.73 |
| Adjusted relevered beta | 1.18 | 1.49 |
JPI's CAPM model and how its cost of Equity is calculated
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 JPI:
cost_of_equity (11.25%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.18) + 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.