The WACC of Ring Energy Inc (REI) is 10.3%.
| Range | Selected | |
| Cost of equity | 15.70% - 20.30% | 18.00% |
| Tax rate | 2.50% - 3.90% | 3.20% |
| Cost of debt | 6.10% - 7.40% | 6.75% |
| WACC | 9.1% - 11.5% | 10.3% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 2.57 | 2.76 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 15.70% | 20.30% |
| Tax rate | 2.50% | 3.90% |
| Debt/Equity ratio | 2.04 | 2.04 |
| Cost of debt | 6.10% | 7.40% |
| After-tax WACC | 9.1% | 11.5% |
| Selected WACC | 10.3% | |
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 (18.00%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (2.57) + 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.