The WACC of ReoStar Energy Corp (REOS) is 5.2%.
| Range | Selected | |
| Cost of equity | 5.10% - 8.50% | 6.80% |
| Tax rate | 22.70% - 29.20% | 25.95% |
| Cost of debt | 7.00% - 7.00% | 7.00% |
| WACC | 5.4% - 5.1% | 5.2% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -0.16 | 0.29 |
| Additional risk adjustments | 2.0% | 2.5% |
| Cost of equity | 5.10% | 8.50% |
| Tax rate | 22.70% | 29.20% |
| Debt/Equity ratio | 27.57 | 27.57 |
| Cost of debt | 7.00% | 7.00% |
| After-tax WACC | 5.4% | 5.1% |
| Selected WACC | 5.2% | |
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 (6.80%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-0.16) + risk_adjustments (2.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.