The WACC of Lighting & Equipment PCL (L&E.BK) is 6.4%.
| Range | Selected | |
| Cost of equity | 7.80% - 9.80% | 8.80% |
| Tax rate | 32.50% - 46.30% | 39.40% |
| Cost of debt | 4.00% - 14.30% | 9.15% |
| WACC | 4.4% - 8.4% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 2.6% | 3.1% |
| Equity market risk premium | 7.4% | 8.4% |
| Adjusted beta | 0.7 | 0.74 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.80% | 9.80% |
| Tax rate | 32.50% | 46.30% |
| Debt/Equity ratio | 2.05 | 2.05 |
| Cost of debt | 4.00% | 14.30% |
| After-tax WACC | 4.4% | 8.4% |
| Selected WACC | 6.4% | |
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 L&E.BK:
cost_of_equity (8.80%) = risk_free_rate (2.85%) + equity_risk_premium (7.90%) * adjusted_beta (0.7) + 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.