The WACC of Ramsay Health Care Ltd (RHC.AX) is 6.3%.
| Range | Selected | |
| Cost of equity | 8.50% - 11.10% | 9.80% |
| Tax rate | 33.20% - 34.30% | 33.75% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 5.2% - 7.4% | 6.3% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.87 | 1 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.50% | 11.10% |
| Tax rate | 33.20% | 34.30% |
| Debt/Equity ratio | 1.31 | 1.31 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 5.2% | 7.4% |
| Selected WACC | 6.3% | |
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 RHC.AX:
cost_of_equity (9.80%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (0.87) + 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.