The WACC of Montanaro UK Smaller Companies Investment Trust PLC (MTU.L) is 8.3%.
| Range | Selected | |
| Cost of equity | 7.70% - 9.80% | 8.75% |
| Tax rate | -% - -% | -% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 7.3% - 9.3% | 8.3% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 5.3% | 6.3% |
| Adjusted beta | 0.88 | 0.92 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.70% | 9.80% |
| Tax rate | -% | -% |
| Debt/Equity ratio | 0.11 | 0.11 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 7.3% | 9.3% |
| Selected WACC | 8.3% | |
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 MTU.L:
cost_of_equity (8.75%) = risk_free_rate (3.15%) + equity_risk_premium (5.80%) * adjusted_beta (0.88) + 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.