The WACC of Lakeview Hotel Investment Corp (LHR.V) is 4.4%.
| Range | Selected | |
| Cost of equity | 68.30% - 160.90% | 114.60% |
| Tax rate | 27.00% - 27.00% | 27.00% |
| Cost of debt | 4.00% - 5.50% | 4.75% |
| WACC | 3.5% - 5.3% | 4.4% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.7% | 5.7% |
| Adjusted beta | 13.73 | 27.31 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 68.30% | 160.90% |
| Tax rate | 27.00% | 27.00% |
| Debt/Equity ratio | 120.4 | 120.4 |
| Cost of debt | 4.00% | 5.50% |
| After-tax WACC | 3.5% | 5.3% |
| Selected WACC | 4.4% | |
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 LHR.V:
cost_of_equity (114.60%) = risk_free_rate (3.45%) + equity_risk_premium (5.20%) * adjusted_beta (13.73) + 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.