The WACC of MDI Energia SA (MDI.WA) is 7.2%.
| Range | Selected | |
| Cost of equity | 7.70% - 9.70% | 8.70% |
| Tax rate | 20.00% - 40.20% | 30.10% |
| Cost of debt | 5.00% - 7.00% | 6.00% |
| WACC | 6.5% - 7.9% | 7.2% |
| Category | Low | High |
| Long-term bond rate | 5.5% | 6.0% |
| Equity market risk premium | 6.3% | 7.3% |
| Adjusted beta | 0.35 | 0.43 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.70% | 9.70% |
| Tax rate | 20.00% | 40.20% |
| Debt/Equity ratio | 0.47 | 0.47 |
| Cost of debt | 5.00% | 7.00% |
| After-tax WACC | 6.5% | 7.9% |
| Selected WACC | 7.2% | |
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 MDI.WA:
cost_of_equity (8.70%) = risk_free_rate (5.75%) + equity_risk_premium (6.80%) * adjusted_beta (0.35) + 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.