The WACC of Pharma Mar SA (PHM.MC) is 9.5%.
| Range | Selected | |
| Cost of equity | 7.00% - 12.30% | 9.65% |
| Tax rate | 25.00% - 25.00% | 25.00% |
| Cost of debt | 5.50% - 6.20% | 5.85% |
| WACC | 6.9% - 12.1% | 9.5% |
| Category | Low | High |
| Long-term bond rate | 3.1% | 3.6% |
| Equity market risk premium | 7.4% | 8.4% |
| Adjusted beta | 0.52 | 0.98 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.00% | 12.30% |
| Tax rate | 25.00% | 25.00% |
| Debt/Equity ratio | 0.04 | 0.04 |
| Cost of debt | 5.50% | 6.20% |
| After-tax WACC | 6.9% | 12.1% |
| Selected WACC | 9.5% | |
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 PHM.MC:
cost_of_equity (9.65%) = risk_free_rate (3.35%) + equity_risk_premium (7.90%) * adjusted_beta (0.52) + 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.