The WACC of ReoStar Energy Corp (REOS) is 5.3%.
| Range | Selected | |
| Cost of equity | 5.50% - 10.00% | 7.75% |
| Tax rate | 22.70% - 29.20% | 25.95% |
| Cost of debt | 7.00% - 7.00% | 7.00% |
| WACC | 5.4% - 5.1% | 5.3% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -0.41 | 0.3 |
| Additional risk adjustments | 3.5% | 4.0% |
| Cost of equity | 5.50% | 10.00% |
| Tax rate | 22.70% | 29.20% |
| Debt/Equity ratio | 30.53 | 30.53 |
| Cost of debt | 7.00% | 7.00% |
| After-tax WACC | 5.4% | 5.1% |
| Selected WACC | 5.3% | |
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 REOS:
cost_of_equity (7.75%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-0.41) + risk_adjustments (3.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.