The WACC of Pennon Group PLC (PNN.L) is 6.1%.
| Range | Selected | |
| Cost of equity | 7.10% - 10.30% | 8.70% |
| Tax rate | 20.60% - 48.20% | 34.40% |
| Cost of debt | 4.00% - 12.50% | 8.25% |
| WACC | 4.5% - 7.7% | 6.1% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.52 | 0.76 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.10% | 10.30% |
| Tax rate | 20.60% | 48.20% |
| Debt/Equity ratio | 2.01 | 2.01 |
| Cost of debt | 4.00% | 12.50% |
| After-tax WACC | 4.5% | 7.7% |
| Selected WACC | 6.1% | |
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 PNN.L:
cost_of_equity (8.70%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * 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.