The WACC of Medley Management Inc (MDLY) is 6.4%.
| Range | Selected | |
| Cost of equity | 11.70% - 16.00% | 13.85% |
| Tax rate | 9.70% - 10.50% | 10.10% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.0% - 6.8% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 2.01 | 2.25 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.70% | 16.00% |
| Tax rate | 9.70% | 10.50% |
| Debt/Equity ratio | 3.9 | 3.9 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.0% | 6.8% |
| 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 MDLY:
cost_of_equity (13.85%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (2.01) + 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.