MFM WACC - Weighted Average Cost of Capital
The WACC of MFS Municipal Income Trust (MFM) is 7.8%.
| Range | Selected | |
| Cost of equity | 8.6% - 12.5% | 10.55% |
| Tax rate | 26.2% - 27.0% | 26.6% |
| Cost of debt | 7.0% - 7.0% | 7% |
| WACC | 6.9% - 8.8% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.04 | 1.36 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.6% | 12.5% |
| Tax rate | 26.2% | 27.0% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 7.0% | 7.0% |
| After-tax WACC | 6.9% | 8.8% |
| Selected WACC | 7.8% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| MFM | MFS Municipal Income Trust | 1.19 | 3.55 | 1.9 |
| ACKIU | Ackrell SPAC Partners I Co | 0.01 | 0.99 | 0.98 |
| CFAC | CF Finance Acquisition III Corp | 0 | 1.05 | 1.04 |
| IVH | Ivy High Income Opportunities Fund | 0.47 | 0.7 | 0.52 |
| RIB.UN.TO | Ridgewood Canadian Investment Grade Bond Fund | 0.06 | 0.02 | 0.02 |
| Low | High | |
| Unlevered beta | 0.79 | 1 |
| Relevered beta | 1.06 | 1.54 |
| Adjusted relevered beta | 1.04 | 1.36 |
MFM's CAPM model and how its cost of Equity is calculated
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 MFM:
cost_of_equity (10.55%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.04) + 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.