The WACC of Petra Diamonds Ltd (PDL.L) is 5.3%.
| Range | Selected | |
| Cost of equity | 7.20% - 9.50% | 8.35% |
| Tax rate | 24.00% - 27.50% | 25.75% |
| Cost of debt | 6.10% - 7.00% | 6.55% |
| WACC | 5.0% - 5.7% | 5.3% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.53 | 0.65 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.20% | 9.50% |
| Tax rate | 24.00% | 27.50% |
| Debt/Equity ratio | 6.49 | 6.49 |
| Cost of debt | 6.10% | 7.00% |
| After-tax WACC | 5.0% | 5.7% |
| Selected WACC | 5.3% | |
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 PDL.L:
cost_of_equity (8.35%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.53) + 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.