The WACC of Plains All American Pipeline LP (PAA) is 5.8%.
| Range | Selected | |
| Cost of equity | 5.10% - 6.90% | 6.00% |
| Tax rate | 7.20% - 9.40% | 8.30% |
| Cost of debt | 5.10% - 7.00% | 6.05% |
| WACC | 5.0% - 6.7% | 5.8% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.05 | 0.19 |
| Additional risk adjustments | 1.0% | 1.5% |
| Cost of equity | 5.10% | 6.90% |
| Tax rate | 7.20% | 9.40% |
| Debt/Equity ratio | 0.63 | 0.63 |
| Cost of debt | 5.10% | 7.00% |
| After-tax WACC | 5.0% | 6.7% |
| Selected WACC | 5.8% | |
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 PAA:
cost_of_equity (6.00%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.05) + risk_adjustments (1.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.