The WACC of Pearson PLC (PSON.L) is 7.6%.
| Range | Selected | |
| Cost of equity | 7.30% - 9.70% | 8.50% |
| Tax rate | 19.60% - 23.50% | 21.55% |
| Cost of debt | 4.80% - 5.10% | 4.95% |
| WACC | 6.6% - 8.5% | 7.6% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 0.55 | 0.67 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.30% | 9.70% |
| Tax rate | 19.60% | 23.50% |
| Debt/Equity ratio | 0.25 | 0.25 |
| Cost of debt | 4.80% | 5.10% |
| After-tax WACC | 6.6% | 8.5% |
| Selected WACC | 7.6% | |
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 PSON.L:
cost_of_equity (8.50%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (0.55) + 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.