The WACC of PennyMac Financial Services Inc (PFSI) is 9.3%.
| Range | Selected | |
| Cost of equity | 6.10% - 8.40% | 7.25% |
| Tax rate | 24.60% - 26.30% | 25.45% |
| Cost of debt | 6.20% - 20.90% | 13.55% |
| WACC | 5.0% - 13.6% | 9.3% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.5 | 0.63 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.10% | 8.40% |
| Tax rate | 24.60% | 26.30% |
| Debt/Equity ratio | 2.9 | 2.9 |
| Cost of debt | 6.20% | 20.90% |
| After-tax WACC | 5.0% | 13.6% |
| Selected WACC | 9.3% | |
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 PFSI:
cost_of_equity (7.25%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.5) + 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.