The WACC of Ring Energy Inc (REI) is 10.5%.
| Range | Selected | |
| Cost of equity | 15.30% - 20.80% | 18.05% |
| Tax rate | 2.50% - 3.90% | 3.20% |
| Cost of debt | 7.00% - 7.40% | 7.20% |
| WACC | 9.5% - 11.4% | 10.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 2.48 | 2.84 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 15.30% | 20.80% |
| Tax rate | 2.50% | 3.90% |
| Debt/Equity ratio | 2.15 | 2.15 |
| Cost of debt | 7.00% | 7.40% |
| After-tax WACC | 9.5% | 11.4% |
| Selected WACC | 10.5% | |
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 REI:
cost_of_equity (18.05%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (2.48) + 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.