The WACC of Magna International Inc (MG.TO) is 7.0%.
| Range | Selected | |
| Cost of equity | 7.20% - 10.80% | 9.00% |
| Tax rate | 24.30% - 27.80% | 26.05% |
| Cost of debt | 4.20% - 4.70% | 4.45% |
| WACC | 5.8% - 8.2% | 7.0% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.79 | 1.09 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.20% | 10.80% |
| Tax rate | 24.30% | 27.80% |
| Debt/Equity ratio | 0.55 | 0.55 |
| Cost of debt | 4.20% | 4.70% |
| After-tax WACC | 5.8% | 8.2% |
| Selected WACC | 7.0% | |
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 MG.TO:
cost_of_equity (9.00%) = risk_free_rate (3.45%) + equity_risk_premium (5.60%) * adjusted_beta (0.79) + 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.