The WACC of Keytone Dairy Corporation Ltd (KTD.AX) is 6.5%.
| Range | Selected | |
| Cost of equity | 5.50% - 10.00% | 7.75% |
| Tax rate | 3.80% - 10.70% | 7.25% |
| Cost of debt | 4.40% - 4.50% | 4.45% |
| WACC | 5.1% - 8.0% | 6.5% |
| Category | Low | High |
| Long-term bond rate | 3.7% | 4.2% |
| Equity market risk premium | 4.7% | 5.7% |
| Adjusted beta | 0.38 | 0.94 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.50% | 10.00% |
| Tax rate | 3.80% | 10.70% |
| Debt/Equity ratio | 0.5 | 0.5 |
| Cost of debt | 4.40% | 4.50% |
| After-tax WACC | 5.1% | 8.0% |
| Selected WACC | 6.5% | |
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 KTD.AX:
cost_of_equity (7.75%) = risk_free_rate (3.95%) + equity_risk_premium (5.20%) * adjusted_beta (0.38) + 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.