The WACC of Meritage Hospitality Group Inc (MHGU) is 8.9%.
| Range | Selected | |
| Cost of equity | 13.80% - 18.90% | 16.35% |
| Tax rate | 21.20% - 23.40% | 22.30% |
| Cost of debt | 5.50% - 6.20% | 5.85% |
| WACC | 7.8% - 9.9% | 8.9% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 2.51 | 2.81 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 13.80% | 18.90% |
| Tax rate | 21.20% | 23.40% |
| Debt/Equity ratio | 1.74 | 1.74 |
| Cost of debt | 5.50% | 6.20% |
| After-tax WACC | 7.8% | 9.9% |
| Selected WACC | 8.9% | |
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 MHGU:
cost_of_equity (16.35%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (2.51) + 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.