The WACC of New Residential Investment Corp (NRZ) is 5.6%.
| Range | Selected | |
| Cost of equity | 9.90% - 13.40% | 11.65% |
| Tax rate | 13.40% - 17.60% | 15.50% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.4% - 5.9% | 5.6% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 1.14 | 1.37 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.90% | 13.40% |
| Tax rate | 13.40% | 17.60% |
| Debt/Equity ratio | 4.31 | 4.31 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.4% | 5.9% |
| Selected WACC | 5.6% | |
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 NRZ:
cost_of_equity (11.65%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (1.14) + 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.