The WACC of Northern Electric PLC (NTEA.L) is 5.6%.
| Range | Selected | |
| Cost of equity | 18.60% - 27.90% | 23.25% |
| Tax rate | 24.00% - 26.60% | 25.30% |
| Cost of debt | 4.70% - 4.90% | 4.80% |
| WACC | 5.1% - 6.1% | 5.6% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 2.45 | 3.28 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 18.60% | 27.90% |
| Tax rate | 24.00% | 26.60% |
| Debt/Equity ratio | 8.99 | 8.99 |
| Cost of debt | 4.70% | 4.90% |
| After-tax WACC | 5.1% | 6.1% |
| 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 NTEA.L:
cost_of_equity (23.25%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (2.45) + 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.