The WACC of KemPharm Inc (KMPH) is 38.1%.
| Range | Selected | |
| Cost of equity | 6.90% - 9.20% | 8.05% |
| Tax rate | 0.40% - 0.70% | 0.55% |
| Cost of debt | 7.00% - 764.40% | 385.70% |
| WACC | 6.9% - 69.3% | 38.1% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 0.54 | 0.67 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.90% | 9.20% |
| Tax rate | 0.40% | 0.70% |
| Debt/Equity ratio | 0.09 | 0.09 |
| Cost of debt | 7.00% | 764.40% |
| After-tax WACC | 6.9% | 69.3% |
| Selected WACC | 38.1% | |
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 KMPH:
cost_of_equity (8.05%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (0.54) + 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.