The WACC of Lument Finance Trust Inc (LFT) is 13.3%.
| Range | Selected | |
| Cost of equity | 5.50% - 7.40% | 6.45% |
| Tax rate | 0.10% - 0.40% | 0.25% |
| Cost of debt | 5.10% - 23.90% | 14.50% |
| WACC | 5.2% - 21.5% | 13.3% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.36 | 0.45 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.50% | 7.40% |
| Tax rate | 0.10% | 0.40% |
| Debt/Equity ratio | 6.32 | 6.32 |
| Cost of debt | 5.10% | 23.90% |
| After-tax WACC | 5.2% | 21.5% |
| Selected WACC | 13.3% | |
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 LFT:
cost_of_equity (6.45%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.36) + 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.