The WACC of Premier Oil PLC (PMO.L) is 11.5%.
| Range | Selected | |
| Cost of equity | 16.10% - 41.10% | 28.60% |
| Tax rate | 19.00% - 19.00% | 19.00% |
| Cost of debt | 8.20% - 16.00% | 12.10% |
| WACC | 7.5% - 15.5% | 11.5% |
| Category | Low | High |
| Long-term bond rate | 2.9% | 3.4% |
| Equity market risk premium | 5.3% | 6.3% |
| Adjusted beta | 2.47 | 5.87 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 16.10% | 41.10% |
| Tax rate | 19.00% | 19.00% |
| Debt/Equity ratio | 10.37 | 10.37 |
| Cost of debt | 8.20% | 16.00% |
| After-tax WACC | 7.5% | 15.5% |
| Selected WACC | 11.5% | |
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 PMO.L:
cost_of_equity (28.60%) = risk_free_rate (3.15%) + equity_risk_premium (5.80%) * adjusted_beta (2.47) + 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.