The WACC of L&T Finance Holdings Ltd (L&TFH.NS) is 9.9%.
| Range | Selected | |
| Cost of equity | 19.20% - 26.10% | 22.65% |
| Tax rate | 29.10% - 30.70% | 29.90% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 8.8% - 11.0% | 9.9% |
| Category | Low | High |
| Long-term bond rate | 7.1% | 7.6% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 1.46 | 1.94 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 19.20% | 26.10% |
| Tax rate | 29.10% | 30.70% |
| Debt/Equity ratio | 1.99 | 1.99 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 8.8% | 11.0% |
| Selected WACC | 9.9% | |
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&TFH.NS:
cost_of_equity (22.65%) = risk_free_rate (7.35%) + equity_risk_premium (8.80%) * adjusted_beta (1.46) + 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.