The WACC of Brompton Oil Split Corp (OSP.TO) is 8.0%.
| Range | Selected | |
| Cost of equity | 9.70% - 12.30% | 11.00% |
| Tax rate | 0.40% - 0.60% | 0.50% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 7.3% - 8.6% | 8.0% |
| Category | Low | High |
| Long-term bond rate | 3.6% | 4.1% |
| Equity market risk premium | 5.5% | 6.5% |
| Adjusted beta | 1.11 | 1.19 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.70% | 12.30% |
| Tax rate | 0.40% | 0.60% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 7.3% | 8.6% |
| Selected WACC | 8.0% | |
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 OSP.TO:
cost_of_equity (11.00%) = risk_free_rate (3.85%) + equity_risk_premium (6.00%) * adjusted_beta (1.11) + 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.