The WACC of Lloyds Banking Group PLC (LLOY.L) is 6.4%.
| Range | Selected | |
| Cost of equity | 11.20% - 14.40% | 12.80% |
| Tax rate | 16.70% - 20.80% | 18.75% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.0% - 6.7% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 1.21 | 1.35 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.20% | 14.40% |
| Tax rate | 16.70% | 20.80% |
| Debt/Equity ratio | 2.8 | 2.8 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.0% | 6.7% |
| 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 LLOY.L:
cost_of_equity (12.80%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (1.21) + 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.