The WACC of LPL Financial Holdings Inc (LPLA) is 9.7%.
| Range | Selected | |
| Cost of equity | 9.20% - 12.60% | 10.90% |
| Tax rate | 24.00% - 24.20% | 24.10% |
| Cost of debt | 4.90% - 5.50% | 5.20% |
| WACC | 8.3% - 11.2% | 9.7% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.16 | 1.39 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.20% | 12.60% |
| Tax rate | 24.00% | 24.20% |
| Debt/Equity ratio | 0.21 | 0.21 |
| Cost of debt | 4.90% | 5.50% |
| After-tax WACC | 8.3% | 11.2% |
| Selected WACC | 9.7% | |
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 LPLA:
cost_of_equity (10.90%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.16) + 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.